-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BPkrJThnCTchP8EHTKBP9WrFTP/HodyDIXcPMlz3Ob//F3tkZiErVnftSn+ce5zs GS1tD3ZYzQrQKgTBPWZl+w== /in/edgar/work/0000788784-00-000050/0000788784-00-000050.txt : 20001114 0000788784-00-000050.hdr.sgml : 20001114 ACCESSION NUMBER: 0000788784-00-000050 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PUBLIC SERVICE ENTERPRISE GROUP INC CENTRAL INDEX KEY: 0000788784 STANDARD INDUSTRIAL CLASSIFICATION: [4931 ] IRS NUMBER: 222625848 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-09120 FILM NUMBER: 758939 BUSINESS ADDRESS: STREET 1: 80 PARK PLZ STREET 2: P O BOX 1171 CITY: NEWARK STATE: NJ ZIP: 07101-1171 BUSINESS PHONE: 9734307000 MAIL ADDRESS: STREET 1: 80 PARK PLZ STREET 2: PO BOX 1171 CITY: NEWARK STATE: NJ ZIP: 07101-1171 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PUBLIC SERVICE ELECTRIC & GAS CO CENTRAL INDEX KEY: 0000081033 STANDARD INDUSTRIAL CLASSIFICATION: [4931 ] IRS NUMBER: 221212800 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-00973 FILM NUMBER: 758940 BUSINESS ADDRESS: STREET 1: 80 PARK PLZ STREET 2: PO BOX 570 CITY: NEWARK STATE: NJ ZIP: 07101-0570 BUSINESS PHONE: 9734307000 MAIL ADDRESS: STREET 1: 80 PARK PLZ STREET 2: PO BOX 570 CITY: NEWARK STATE: NJ ZIP: 07101-0570 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PSEG ENERGY HOLDINGS INC CENTRAL INDEX KEY: 0001089206 STANDARD INDUSTRIAL CLASSIFICATION: [4911 ] IRS NUMBER: 222983750 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-95697 FILM NUMBER: 758941 BUSINESS ADDRESS: STREET 1: 80 PARK PLZ STREET 2: T22 CITY: NEWARK STATE: NJ ZIP: 07102-4194 BUSINESS PHONE: 9734307000 MAIL ADDRESS: STREET 1: 80 PARK PLZ STREET 2: T22 CITY: NEWARK STATE: NJ ZIP: 07102 10-Q 1 0001.txt PSEG, PSE&G AND PSEG ENERGY HOLDINGS 3RD QTR. 10-Q ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission Registrant, State of Incorporation, I.R.S. Employer File Address, and Telephone Number Identification Number No. - ---------- ------------------------------------------ ---------------- 1-9120 PUBLIC SERVICE ENTERPRISE GROUP 22-2625848 INCORPORATED (A New Jersey Corporation) 80 Park Plaza P.O. Box 1171 Newark, New Jersey 07101-1171 973 430-7000 http://www.pseg.com 1-973 PUBLIC SERVICE ELECTRIC AND GAS COMPANY 22-1212800 (A New Jersey Corporation) 80 Park Plaza P.O. Box 570 Newark, New Jersey 07101-0570 973 430-7000 333-95697 PSEG ENERGY HOLDINGS, INC. 22-2983750 (A New Jersey Corporation) 80 Park Plaza-T22 Newark, New Jersey 07101-4194 973 456-3581 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Public Service Enterprise Group Incorporated Yes X No ___ Public Service Electric and Gas Company Yes X No ___ PSEG Energy Holdings Inc. Yes X No ___ As of October 31, 2000, Public Service Enterprise Group Incorporated had outstanding 214,406,518 shares of its sole class of Common Stock, without par value and Public Service Electric and Gas Company and PSEG Energy Holdings Inc. had issued and outstanding 132,450,344 and 100 shares of common stock, without nominal or par value, respectively, all of which were privately held, beneficially and of record by Public Service Enterprise Group Incorporated. ================================================================================ ================================================================================ PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED ================================================================================ TABLE OF CONTENTS Page ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Public Service Enterprise Group Incorporated (PSEG).................. 1 Public Service Electric and Gas Company (PSE&G)...................... 5 PSEG Energy Holdings Inc. (Energy Holdings).......................... 9 Notes to Consolidated Financial Statements -- PSEG................... 13 Notes to Consolidated Financial Statements -- PSE&G................... 23 Notes to Consolidated Financial Statements -- Energy Holdings......... 24 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations PSEG .............................................................. 25 PSE&G.............................................................. 38 Energy Holdings.................................................... 38 Item 3. Qualitative and Quantitative Disclosures About Market Risk..... 39 PART II. OTHER INFORMATION Item 1. Legal Proceedings.............................................. 40 Item 5. Other Information.............................................. 40 Item 6. Exhibits and Reports on Form 8-K............................... 41 Signatures -- PSEG..................................................... 42 Signatures -- PSE&G.................................................... 42 Signatures -- Energy Holdings.......................................... 43 ================================================================================ PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED ================================================================================ PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED CONSOLIDATED STATEMENTS OF INCOME (Millions of Dollars, except for Per Share Data) (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, ------------------------------------ ----------------------------------- 2000 1999 2000 1999 --------------- ---------------- ---------------- -------------- OPERATING REVENUES Electric Revenues * Bundled $ -- $ 494 $ -- $ 2,480 Generation 564 430 1,677 430 Transmission and Distribution 498 320 1,385 320 --------------- ---------------- ---------------- -------------- Total Electric Revenues 1,062 1,244 3,062 3,230 Gas Distribution 280 214 1,346 1,191 Other 183 148 562 416 --------------- ---------------- ---------------- -------------- Total Operating Revenues 1,525 1,606 4,970 4,837 --------------- ---------------- ---------------- -------------- OPERATING EXPENSES Electric Energy Costs 302 312 798 775 Gas Costs 205 154 922 780 Operation and Maintenance 490 471 1,462 1,328 Depreciation and Amortization 90 122 266 410 Taxes Other Than Income Taxes 46 44 134 143 --------------- ---------------- ---------------- -------------- Total Operating Expenses 1,133 1,103 3,582 3,436 --------------- ---------------- ---------------- -------------- OPERATING INCOME 392 503 1,388 1,401 Other Income and Deductions 6 26 23 39 Interest Expense (148) (126) (422) (355) Preferred Securities Dividend Requirements (24) (23) (71) (70) --------------- ---------------- ---------------- -------------- INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM 226 380 918 1,015 Income Taxes (84) (159) (364) (425) --------------- ---------------- ---------------- -------------- INCOME BEFORE EXTRAORDINARY ITEM 142 221 554 590 Extraordinary Item (net of tax of $345) -- (14) -- (804) --------------- ---------------- ---------------- -------------- NET INCOME (LOSS) $ 142 $ 207 $ 554 $ (214) =============== ================ ================ ============== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (000's) 214,623 219,225 215,465 220,413 =============== ================ ================ ============== EARNINGS (LOSS) PER SHARE (BASIC AND DILUTED): INCOME BEFORE EXTRAORDINARY ITEM $ 0.66 $ 1.01 $ 2.57 $ 2.68 Extraordinary Item (net of tax) -- (0.06) -- (3.65) --------------- ---------------- ---------------- -------------- NET INCOME (LOSS) $ 0.66 $ 0.95 $ 2.57 $ (0.97) =============== ================ ================ ============== DIVIDENDS PAID PER SHARE OF COMMON STOCK $ 0.54 $ 0.54 $ 1.62 $ 1.62 =============== ================ ================ ============== *Note: Bundled revenues were recorded based on the bundled rates in effect through 7/31/99. Commencing with the unbundling of rates on 8/1/99, revenues are disaggregated between Generation Revenue and Transmission and Distribution Revenue. See Notes to Consolidated Financial Statements.
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED CONSOLIDATED BALANCE SHEETS ASSETS (Millions of Dollars) (Unaudited) September 30, December 31, 2000 1999 ------------------- ------------------- CURRENT ASSETS Cash and Cash Equivalents $ 115 $ 259 Accounts Receivable: Customer Accounts Receivable 589 646 Other Accounts Receivable 298 371 Allowance for Doubtful Accounts (43) (40) Unbilled Revenues 181 241 Fuel 279 311 Materials and Supplies, net of valuation reserves-- 2000 and 1999, $11 153 130 Prepayments 111 39 Other 142 86 ------------------- ------------------- Total Current Assets 1,825 2,043 ------------------- ------------------- PROPERTY, PLANT AND EQUIPMENT Electric - Generation 2,430 2,355 Electric - Transmission and Distribution 5,264 5,113 Gas - Distribution 3,136 3,019 Other 580 534 ------------------- ------------------- Total 11,410 11,021 Accumulated Depreciation and Amortization (4,094) (3,943) ------------------- ------------------- Net Property, Plant and Equipment 7,316 7,078 ------------------- ------------------- NONCURRENT ASSETS Regulatory Assets 4,958 5,041 Long-Term Investments, net of accumulated amortization and valuation allowances-- 2000, $72; 1999, $65 4,489 3,848 Nuclear Decommissioning Fund 682 631 Other Special Funds 124 148 Other, net of accumulated amortization-- 2000, $19; 1999, $12 314 226 ------------------- ------------------- Total Noncurrent Assets 10,567 9,894 ------------------- ------------------- TOTAL ASSETS $ 19,708 $ 19,015 ================== =================== See Notes to Consolidated Financial Statements.
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED CONSOLIDATED BALANCE SHEETS LIABILITIES AND CAPITALIZATION (Millions of Dollars) (Unaudited) September 30, December 31, 2000 1999 ------------------- ------------------- CURRENT LIABILITIES Long-Term Debt Due Within One Year $ 779 $ 1,073 Commercial Paper and Loans 2,664 1,972 Accounts Payable 613 738 Other 419 394 ------------------- ------------------- Total Current Liabilities 4,475 4,177 ------------------- ------------------- NONCURRENT LIABILITIES Deferred Income Taxes and ITC 3,045 2,928 Regulatory Liabilities 522 604 Nuclear Decommissioning 682 631 OPEB Costs 433 390 Other 495 506 ------------------- ------------------- Total Noncurrent Liabilities 5,177 5,059 ------------------- ------------------- COMMITMENTS AND CONTINGENT LIABILITIES -- -- ------------------- ------------------- CAPITALIZATION LONG-TERM DEBT 4,706 4,575 ------------------- ------------------- SUBSIDIARIES' PREFERRED SECURITIES Preferred Stock Without Mandatory Redemption 95 95 Preferred Stock With Mandatory Redemption 75 75 Guaranteed Preferred Beneficial Interest in Subordinated Debentures 1,038 1,038 ------------------- ------------------- Total Subsidiaries' Preferred Securities 1,208 1,208 ------------------- ------------------- COMMON STOCKHOLDERS' EQUITY Common Stock, issued: 231,957,608 shares 3,604 3,604 Treasury Stock, at cost: 2000--17,551,090 shares; 1999--15,540,390 shares (669) (597) Retained Earnings 1,398 1,193 Accumulated Other Comprehensive Loss (191) (204) ------------------- ------------------- Total Common Stockholders' Equity 4,142 3,996 ------------------- ------------------- Total Capitalization 10,056 9,779 ------------------- ------------------- TOTAL LIABILITIES AND CAPITALIZATION $ 19,708 $ 19,015 =================== =================== See Notes to Consolidated Financial Statements.
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS (Millions of Dollars) (Unaudited) Nine Months Ended September 30, ---------------------------------------- 2000 1999 ----------------- ----------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 554 $ (214) Adjustments to reconcile net income (loss) to net cash flows from operating activities: Extraordinary Loss - net of tax -- 804 Depreciation and Amortization 266 410 Amortization of Nuclear Fuel 47 68 Recovery of Electric Energy and Gas Costs-- net 24 68 Provision for Deferred Income Taxes and ITC-- net 3 (227) Investment Distributions 40 124 Equity Income from Partnerships (30) (50) Unrealized Gains on Investments (9) (53) Net Changes in Certain Current Assets and Liabilities: Accounts Receivable and Unbilled Revenues 193 (127) Prepayments (72) (102) Accounts Payable (125) 174 Other Current Assets and Liabilities (22) 1 Other 60 79 ----------------- ----------------- Net Cash Provided By Operating Activities 929 955 ----------------- ----------------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to Property, Plant and Equipment, excluding Capitalized Interest and AFDC (574) (280) Net Change in Long-Term Investments (536) (846) Other (47) (51) ----------------- ----------------- Net Cash Used in Investing Activities (1,157) (1,177) ----------------- ----------------- CASH FLOWS FROM FINANCING ACTIVITIES Net Change in Short-Term Debt 692 546 Issuance of Long-Term Debt 590 713 Redemption/Purchase of Long-Term Debt (777) (428) Purchase of Treasury Stock (72) (309) Cash Dividends Paid on Common Stock (348) (357) Other (1) 1 ----------------- ----------------- Net Cash (Used In) Provided By Financing Activities 84 166 ----------------- ----------------- Net Change in Cash and Cash Equivalents (144) (56) Cash and Cash Equivalents at Beginning of Period 259 140 ----------------- ----------------- Cash and Cash Equivalents at End of Period $ 115 $ 84 ================= ================= Income Taxes Paid $ 380 $ 426 Interest Paid $ 354 $ 345 See Notes to Consolidated Financial Statements.
PUBLIC SERVICE ELECTRIC AND GAS COMPANY CONSOLIDATED STATEMENTS OF INCOME (Millions of Dollars) (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, ---------------------------------- ------------------------------------ 2000 1999 2000 1999 -------------- --------------- --------------- ---------------- OPERATING REVENUES Electric Revenues * Bundled $ -- $ 494 $ -- $ 2,480 Generation 135 430 1,248 430 Transmission and Distribution 884 320 1,771 320 -------------- --------------- --------------- ---------------- Total Electric Revenues 1,019 1,244 3,019 3,230 Gas Distribution 280 214 1,346 1,191 -------------- --------------- --------------- ---------------- Total Operating Revenues 1,299 1,458 4,365 4,421 -------------- --------------- --------------- ---------------- OPERATING EXPENSES Electric Energy Costs 603 309 1,076 765 Gas Costs 202 141 881 730 Operation and Maintenance 185 382 958 1,141 Depreciation and Amortization 60 120 230 405 Taxes Other than Income Taxes 35 43 123 142 -------------- --------------- --------------- ---------------- Total Operating Expenses 1,085 995 3,268 3,183 -------------- --------------- --------------- ---------------- OPERATING INCOME 214 463 1,097 1,238 Other Income and Deductions 5 5 17 8 Interest Expense (52) (98) (246) (284) Preferred Securities Dividend Requirements (11) (12) (34) (35) -------------- --------------- --------------- ---------------- INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM 156 358 834 927 Income Taxes (57) (153) (333) (393) -------------- --------------- --------------- ---------------- INCOME BEFORE EXTRAORDINARY ITEM 99 205 501 534 Extraordinary Item (net of tax of $345) -- (14) -- (804) -------------- --------------- --------------- ---------------- NET INCOME (LOSS) 99 191 501 (270) Preferred Stock Dividend Requirements (2) (2) (7) (7) -------------- --------------- --------------- ---------------- EARNINGS (LOSS) AVAILABLE TO PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED $ 97 $ 189 $ 494 $ (277) ============== =============== =============== ================ * Note: Bundled revenues were recorded based on the bundled rates in effect through 7/31/99. Commencing with the unbundling of rates on 8/1/99, revenues are disaggregated between Generation Revenue and Transmission and Distribution Revenue. See Notes to Consolidated Financial Statements.
PUBLIC SERVICE ELECTRIC AND GAS COMPANY CONSOLIDATED BALANCE SHEETS ASSETS (Millions of Dollars) (Unaudited) September 30, December 31, 2000 1999 ---------------- ------------------ CURRENT ASSETS Cash and Cash Equivalents $ 26 $ 173 Accounts Receivable: Customer Accounts Receivable 443 529 Other Accounts Receivable 62 313 Allowance for Doubtful Accounts (36) (35) Unbilled Revenues 180 241 Fuel 229 308 Materials and Supplies, net of valuation reserves-- 2000 $0 and 1999, $11 55 130 Prepayments 94 34 Other 17 50 ---------------- ------------------ Total Current Assets 1,070 1,743 ---------------- ------------------ PROPERTY, PLANT AND EQUIPMENT Electric - Generation -- 2,284 Electric - Transmission and Distribution 5,264 5,113 Gas - Distribution 3,136 3,019 Other 420 457 ---------------- ------------------ Total 8,820 10,873 Accumulated Depreciation and Amortization (3,082) (3,911) ---------------- ------------------ Net Property, Plant and Equipment 5,738 6,962 ---------------- ------------------ NONCURRENT ASSETS Regulatory Assets 4,958 5,041 Notes Receivable - Affiliated Companies 2,786 -- Long-Term Investments 105 99 Nuclear Decommissioning Fund -- 631 Other Special Funds 84 148 Other 73 100 ---------------- ------------------ Total Noncurrent Assets 8,006 6,019 ---------------- ------------------ TOTAL ASSETS $ 14,814 $ 14,724 ================ ================== See Notes to Consolidated Financial Statements.
PUBLIC SERVICE ELECTRIC AND GAS COMPANY CONSOLIDATED BALANCE SHEETS LIABILITIES AND CAPITALIZATION (Millions of Dollars) (Unaudited) September 30, December 31, 2000 1999 ------------------ ------------------ CURRENT LIABILITIES Long-Term Debt Due Within One Year $ -- $ 623 Commercial Paper and Loans 1,595 1,475 Accounts Payable 278 676 Other 223 281 ------------------ ------------------ Total Current Liabilities 2,096 3,055 ------------------ ------------------ NONCURRENT LIABILITIES Deferred Income Taxes and ITC 2,704 2,032 Regulatory Liabilities 522 604 Nuclear Decommissioning -- 631 OPEB Costs 425 390 Other 212 479 ------------------ ------------------ Total Noncurrent Liabilities 3,863 4,136 ------------------ ------------------ COMMITMENTS AND CONTINGENT LIABILITIES -- -- ------------------ ------------------ CAPITALIZATION LONG-TERM DEBT 3,391 3,099 ------------------ ------------------ PREFERRED SECURITIES Preferred Stock Without Mandatory Redemption 95 95 Preferred Stock With Mandatory Redemption 75 75 Subsidiaries' Preferred Securities: Guaranteed Preferred Beneficial Interest in Subordinated Debentures 513 513 ------------------ ------------------ Total Preferred Securities 683 683 ------------------ ------------------ COMMON STOCKHOLDER'S EQUITY Common Stock, issued: 132,450,344 shares 2,563 2,563 Contributed Capital 594 594 Basis Adjustment 986 -- Retained Earnings 641 597 Accumulated Other Comprehensive Loss (3) (3) ------------------ ------------------ Total Common Stockholder's Equity 4,781 3,751 ------------------ ------------------ Total Capitalization 8,855 7,533 ------------------ ------------------ TOTAL LIABILITIES AND CAPITALIZATION $ 14,814 $ 14,724 ================== ================== See Notes to Consolidated Financial Statements.
PUBLIC SERVICE ELECTRIC AND GAS COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (Millions of Dollars) (Unaudited) Nine Months Ended September 30, ------------------------------------------ 2000 1999 ---------------- ------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 501 $ (270) Adjustments to reconcile net income (loss) to net cash flows from operating activities: Extraordinary Loss - net of tax -- 804 Depreciation and Amortization 230 405 Amortization of Nuclear Fuel 36 68 Recovery of Electric Energy and Gas Costs-- net 24 68 Provision for Deferred Income Taxes and ITC-- net (9) (203) Net Changes in Certain Current Assets and Liabilities: Accounts Receivable and Unbilled Revenues 56 (126) Prepayments (62) (107) Accounts Payable (14) 138 Other Current Assets and Liabilities (20) (9) Other 61 85 ---------------- ------------------- Net Cash Provided By Operating Activities 803 853 ---------------- ------------------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to Property, Plant and Equipment, excluding Capitalized Interest and AFDC (280) (280) Other (2) (59) ---------------- ------------------- Net Cash Used in Investing Activities (282) (339) ---------------- ------------------- CASH FLOWS FROM FINANCING ACTIVITIES Net Change in Short-Term Debt 120 230 Issuance of Long-Term Debt 290 -- Redemption/Purchase of Long-Term Debt (621) (246) Cash Dividends Paid on common stock (450) (510) Other (7) (6) ---------------- ------------------- Net Cash Used in Financing Activities (668) (532) ---------------- ------------------- Net Change in Cash and Cash Equivalents (147) (18) Cash and Cash Equivalents at Beginning of Period 173 42 ---------------- ------------------- Cash and Cash Equivalents at End of Period $ 26 $ 24 ================ =================== Income Taxes Paid $ 509 $ 443 Interest Paid $ 303 $ 297 See Notes to Consolidated Financial Statements.
PSEG ENERGY HOLDINGS INC. CONSOLIDATED STATEMENTS OF INCOME (Millions of Dollars) (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, ---------------------------------- ---------------------------------- 2000 1999 2000 1999 ------------- ---------------- -------------- --------------- OPERATING REVENUES Income from Joint Ventures and Partnerships $ 47 $ 39 $ 108 $ 96 Energy Service Revenues 79 67 232 124 Energy Supply Revenues 9 15 66 61 Income from Capital and Operating Leases 47 29 122 82 Net Investment Gains (Losses) (9) (11) 9 31 Other 10 9 25 22 ------------- ---------------- -------------- --------------- Total Operating Revenues 183 148 562 416 ------------- ---------------- -------------- --------------- OPERATING EXPENSES Cost of Energy Sales 9 14 67 59 Restructure Costs -- -- 7 -- Operation and Maintenance 103 90 297 190 Depreciation and Amortization 3 2 10 5 Write-down of Investments -- 44 -- 44 ------------- ---------------- -------------- --------------- Total Operating Expenses 115 150 381 298 ------------- ---------------- -------------- --------------- OPERATING INCOME (LOSS) 68 (2) 181 118 Other Income 1 65 3 72 Interest Expense-Net (31) (25) (102) (65) ------------- ---------------- -------------- --------------- INCOME BEFORE INCOME TAXES 38 38 82 125 Income Taxes (11) (14) (23) (44) Minority Interests -- -- 1 1 ------------- ---------------- -------------- --------------- NET INCOME 27 24 60 82 Preferred Stock Dividend Requirements (6) (6) (19) (19) ------------- ---------------- -------------- --------------- EARNINGS AVAILABLE TO PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED $ 21 $ 18 $ 41 $ 63 ============= ================ ============= =============== See Notes to Consolidated Financial Statements.
PSEG ENERGY HOLDINGS INC. CONSOLIDATED BALANCE SHEETS ASSETS (Millions of Dollars) (Unaudited) September 30, December 31, 2000 1999 ------------------- -------------------- CURRENT ASSETS Cash and Cash Equivalents $ 56 $ 43 Accounts Receivable: Trade 121 111 Other 33 31 Allowance for Doubtful Accounts (7) (5) Assets Held for Sale 36 36 Notes Receivable 19 12 Other Current Assets 6 12 ------------------- -------------------- Total Current Assets 264 240 ------------------- -------------------- PROPERTY AND EQUIPMENT Real Estate, net of valuation allowances 2000 and 1999, $22 89 34 Property and Equipment 58 45 ------------------- -------------------- Total 147 79 Accumulated Depreciation and Amortization (48) (33) ------------------- -------------------- Net Property and Equipment 99 46 ------------------- -------------------- INVESTMENTS Capital Leases - Net 2,274 1,759 Corporate Joint Ventures 1,477 1,428 Partnerships Interests 532 493 Other Investments 75 73 ------------------- -------------------- Total Investments 4,358 3,753 ------------------- -------------------- OTHER ASSETS 106 75 ------------------- -------------------- TOTAL ASSETS $ 4,827 $ 4,114 =================== ==================== See Notes to Consolidated Financial Statements.
PSEG ENERGY HOLDINGS INC. CONSOLIDATED BALANCE SHEETS LIABILITIES AND CAPITALIZATION (Millions of Dollars) (Unaudited) September 30, December 31, 2000 1999 ------------------- ---------------------- CURRENT LIABILITIES Long-Term Debt Due Within One Year $ 204 $ 175 Notes Payable 370 351 Accounts Payable: Trade 47 41 Interest 43 20 Other 59 43 Other Current Liabilities 15 11 ------------------- ---------------------- Total Current Liabilities 738 641 ------------------- ---------------------- NONCURRENT LIABILITIES Deferred Income Taxes and ITC 1,015 896 Other Noncurrent Liabilities 31 25 ------------------- ---------------------- Total Noncurrent Liabilities 1,046 921 ------------------- ---------------------- COMMITMENTS AND CONTINGENT LIABILITIES -- -- ------------------- ---------------------- MINORITY INTERESTS 7 2 ------------------- ---------------------- CAPITALIZATION LONG-TERM DEBT 1,316 1,175 ------------------- ---------------------- STOCKHOLDER'S EQUITY Common Stock, issued: 100 shares -- -- Preferred Stock 509 509 Additional Paid-in Capital 1,090 790 Retained Earnings 309 276 Accumulated Other Comprehensive Loss (188) (200) ------------------- ---------------------- Total Stockholder's Equity 1,720 1,375 ------------------- ---------------------- Total Capitalization 3,036 2,550 ------------------- ---------------------- TOTAL LIABILITIES AND CAPITALIZATION $ 4,827 $ 4,114 =================== ====================== See Notes to Consolidated Financial Statements.
PSEG ENERGY HOLDINGS INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Millions of Dollars) (Unaudited) Nine Months Ended September 30, ---------------------------------------------- 2000 1999 ------------------- --------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 60 $ 82 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and Amortization 18 13 Deferred Income Taxes (Other than Leases) 3 (17) Income from Leasing Activities 24 (2) Investment Distributions 40 124 Equity Income from Partnerships (30) (50) Net Gains on Investments (9) (53) Restructure Costs 7 -- Net Changes in Certain Current Assets and Liabilities: Accounts Receivable (72) (75) Taxes Payable -- 6 Accounts Payable 113 67 Interest Payable 12 9 Other Current Assets and Liabilities (28) 2 Other 5 (2) ------------------- --------------------- Net Cash Provided By Operating Activities 143 104 ------------------- --------------------- CASH FLOWS FROM INVESTING ACTIVITIES Increase in Partnerships and Joint Ventures (146) (709) Investments in Capital Leases (459) (236) Acquisitions, net of Cash Provided (16) (31) Proceeds from Sales of Capital Leases 9 77 Additions to Property and Equipment (6) (5) Proceeds from Sale of Real Estate and Equity Investments -- 71 (Addition to)/Reduction of Deferred Project Costs (2) 15 Return of Capital from Partnerships 72 27 Other (16) 8 ------------------- --------------------- Net Cash Used in Investing Activities (564) (783) ------------------- --------------------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from Additional Paid-in Capital 300 200 Cash Dividends Paid (27) (21) Repayment of Borrowings (156) (180) Proceeds from Borrowings 311 688 Other 6 (4) ------------------- --------------------- Net Cash Provided By Financing Activities 434 683 ------------------- --------------------- Net Change in Cash and Cash Equivalents 13 4 Cash and Cash Equivalents at Beginning of Period 43 9 ------------------- --------------------- Cash and Cash Equivalents at End of Period $ 56 $ 13 =================== ===================== Income Tax Benefits $ (119) $ (12) Interest Paid $ 31 $ 34 See Notes to Consolidated Financial Statements.
================================================================================ PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED ================================================================================ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. Basis of Presentation Basis of Presentation The financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. However, in the opinion of management, the disclosures are adequate to make the information presented not misleading. Public Service Enterprise Group Incorporated's (PSEG) and Public Service Electric and Gas Company's (PSE&G) consolidated financial statements and Notes to Consolidated Financial Statements (Notes) should be read in conjunction with their 1999 Annual Report on Form 10-K, the Quarterly Reports on Form 10-Q for the quarters ended March 31, 2000 and June 30, 2000, the Current Reports on Form 8-K filed August 21, 2000, September 5, 2000, October 18, 2000 and October 27, 2000 and the Amended Current Report on Form 8-K/A filed November 1, 2000. PSEG Energy Holdings Inc.'s (Energy Holdings) consolidated financial statements and Notes should be read in conjunction with its Registration Statement on Form S-4 filed June 29, 2000, Quarterly Report on Form 10-Q for the quarter ended June 30, 2000 and Current Reports on Form 8-K filed October 18, 2000 and October 27, 2000. These Notes update and supplement matters discussed in PSEG's and PSE&G's 1999 Annual Report on Form 10-K and Energy Holdings' Registration Statement on Form S-4 filed June 29, 2000. Effective August 1, 2000, the presentation of Electric Revenues and Electric Energy Costs in the Consolidated Statements of Income has changed due to PSE&G's transfer of its electric generating facilities to PSEG Power LLC (Power) and wholesale power contracts to PSEG Energy Resources and Trade (ER&T) (see Note 2. Regulatory Issues and Accounting Impacts of Deregulation), a wholly-owned subsidiary of Power. Effective with the transfer, PSE&G entered into a contract with Power to obtain the energy and capacity necessary to meet PSE&G's basic generation service (BGS) obligation. As a result, PSE&G's Electric Energy Costs will now reflect PSE&G's cost under the contracted price with Power and Power's Electric Energy Costs will reflect the actual cost of generation. PSEG eliminates these intercompany revenues and expenses in its consolidated financial statements. Under the BGS contract, PSE&G pays a fixed price for energy and capacity provided by Power and charges such costs to its BGS customers. As a result, PSE&G is no longer subject to price risk related to market exposures for its estimated electric commitments. Following the generation asset transfer, Power has entered into forwards, futures, swaps and options to manage price risk exposure for its commitments to meet PSE&G's BGS obligation in addition to Power's other supply contracts. The unaudited financial information furnished reflects all adjustments which are, in the opinion of management, necessary to fairly state the results for the interim periods presented. The year-end consolidated balance sheets were derived from the audited consolidated financial statements included in PSEG's and PSE&G's 1999 Annual Report on Form 10-K and Energy Holdings' Registration Statement on Form S-4 filed June 29, 2000. Certain reclassifications of prior period data have been made to conform with the current presentation. Note 2. Regulatory Issues and Accounting Impacts of Deregulation New Jersey Energy Master Plan Proceedings and Related Orders Following the enactment of the New Jersey Electric Discount and Energy Competition Act (Energy Competition Act), the New Jersey Board of Public Utilities (BPU) rendered its summary decision relating to PSE&G's rate unbundling, stranded costs and restructuring proceedings (Summary Order) and subsequently issued its Final Order in these matters, providing, among other things, for the transfer to an affiliate of all of PSE&G's electric generation facilities, plant and equipment for $2.443 billion and all other related property, including materials, supplies and fuel at the net book value thereof, together with associated rights and liabilities. Also in the Final Order, the BPU concluded that PSE&G should recover up to $2.94 billion (net of tax) of its generation-related stranded costs, through securitization of $2.4 billion and an opportunity to recover up to $540 million (net of tax) of its unsecuritized generation-related stranded costs on a net present value basis. The $540 million is subject to recovery by various means, including an explicit market transition charge (MTC). Following the issuance of the Final Order, the BPU issued its order approving PSE&G's petition relating to the proposed securitization transaction (Finance Order) which authorized, among other things, the issuance and sale of $2.525 billion of transition bonds, including an estimated $125 million of transaction costs. The Energy Competition Act, the BPU's Summary Order and Final Order and the related BPU proceedings, referred to as the Energy Master Plan Proceedings, opened the New Jersey energy markets to competition by allowing all New Jersey retail electric customers to, among other things, select their electric supplier commencing August 1, 1999 and all New Jersey retail gas customers to select their gas supplier commencing January 1, 2000. In October and November 1999, two appeals of certain provisions of the Final Order and two appeals of certain provisions of the related Finance Order were filed in the Appellate Division of the New Jersey Superior Court (Appellate Division) on behalf of several customers and the New Jersey Office of the Ratepayer Advocate (Ratepayer Advocate). In a decision issued on April 13, 2000, a three-judge Appellate Division panel unanimously affirmed the Final Order and Finance Order. Thereafter, the appellants filed a Petition requesting Certification and a Notice of Appeal with the New Jersey Supreme Court seeking review of the Appellate Division decision. On July 14, 2000, the New Jersey Supreme Court granted Certification with respect to both matters. Oral arguments for all parties were held on November 8, 2000. While PSE&G continues to believe that the Appellate Division's unanimous decision was correct, it can give no assurances with respect to the ultimate timing or disposition of these matters by the New Jersey Supreme Court. An adverse outcome to this review or substantial additional delays beyond the first quarter of 2001, could have a material adverse impact on PSEG's, PSE&G's and Energy Holdings' financial condition, results of operations and net cash flows and could require revisions to financing plans, revisions to business plans delaying or restricting current growth strategies and the imposition of other operational and/or financial measures. As a result of the Supreme Court's review, PSE&G's securitization transaction has been delayed at least until the first quarter of 2001, causing a delay in the implementation of the Securitization Transition Charge (STC) which would have reduced the MTC. In order to recognize the recovery of the allowed unsecuritized stranded costs over the transition period, PSEG has recorded a charge to net income of $52 million, after tax, in the third quarter of 2000 for the cumulative amount of estimated collections in excess of the allowed unsecuritized stranded costs from August 1, 1999 through September 30, 2000. Any such collections in excess of the allowed unsecuritized stranded costs at the end of the transition period will be credited to the Societal Benefits Clause (SBC) as required by the Final Order. Asset Transfer to Power PSE&G, pursuant to the Final Order, transferred its electric generating facilities and wholesale power contracts to Power, an unregulated power producing affiliate, on August 21, 2000 in exchange for a Promissory Note from Power in an amount equal to the purchase price. Until such note is paid, the assets transferred remain subject to the lien of PSE&G's First and Refunding Mortgage. The generating assets were transferred at the price specified in the BPU order - $2.443 billion plus $343 million for other generating related assets and liabilities. Because the transfer was between affiliates, PSE&G and Power recorded the sale at the net book value of the assets and liabilities rather than the transfer price. The difference between the total transfer price and the net book value of the generation-related assets and liabilities was recorded as a Basis Adjustment on PSE&G's and Power's Consolidated Balance Sheets. These amounts are eliminated on PSEG's consolidated financial statements. The parties have agreed to execute a supplemental agreement reflecting any change in the value of the assets, if required as a result of the New Jersey Supreme Court review discussed above. Extraordinary Charge and Other Accounting Impacts of Deregulation In April 1999, PSE&G determined that Statement of Financial Accounting Standards (SFAS) 71 "Accounting for the Effects of Regulation" (SFAS 71) was no longer applicable to the electric generation portion of its business in accordance with the requirements of Emerging Issues Task Force Issue 97-4, "Deregulation of the Pricing of Electricity - Issues Related to the Application of FASB Statements No. 71 and No. 101" (EITF 97-4). Accordingly, PSE&G recorded an extraordinary charge to earnings of $804 million (after tax). PSE&G accounted for this charge consistent with the requirements of SFAS 101, "Regulated Enterprises - Accounting for the Discontinuation of Application of FASB Statement No. 71". This extraordinary charge consisted primarily of the write-down of PSE&G's nuclear and fossil generating stations in accordance with SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" (SFAS 121). PSE&G performed a discounted cash flow analysis on a unit-by-unit basis to determine the amount of the impairment. As a result of this impairment analysis, the net book value of the generating stations was reduced by approximately $5.0 billion (pre-tax) or approximately $3.1 billion (net of tax). This amount was offset by the creation of a $4.057 billion (pre-tax), or $2.4 billion (net of tax) regulatory asset related to the future receipt of securitization proceeds, as provided for in the Summary Order and affirmed in the Final Order and Finance Order. In addition to the impairment of PSE&G's electric generating stations, the extraordinary charge consisted of various accounting adjustments to reflect the absence of cost of service regulation in the electric generation portion of its business. The adjustments primarily related to materials and supplies, general plant items and liabilities for certain contractual and environmental obligations. Other accounting impacts of the discontinuation of SFAS 71 included reclassifying the Accrued Nuclear Decommissioning Reserve and the Accrued Cost of Removal for generation-related assets from Accumulated Depreciation to Long-Term Liabilities. In accordance with the Final Order, PSE&G also reclassified a $569 million excess depreciation reserve related to PSE&G's electric distribution assets from Accumulated Depreciation to a Regulatory Liability. Such amount will be amortized in accordance with the terms of the Final Order over the period from January 1, 2000 to July 31, 2003. Note 3. Regulatory Assets and Liabilities At September 30, 2000 and December 31, 1999, respectively, PSEG and PSE&G had deferred the following regulatory assets and liabilities on the Consolidated Balance Sheets:
(Unaudited) September 30, December 31, 2000 1999 ------------------ ----------------- (Millions of Dollars) Regulatory Assets: Stranded Costs to be Securitized $4,057 $4,057 SFAS 109 Income Taxes 280 286 OPEB Costs 237 237 SBC and Related Items 27 130 Demand Side Management Costs 14 7 Environmental Costs 90 94 Unamortized Loss on Reacquired Debt and Debt Expense 107 117 Other 146 113 ------------------ ----------------- Total Regulatory Assets $4,958 $5,041 ================== ================= Regulatory Liabilities: Excess Depreciation Reserve $475 $569 Non-utility Generation Market Transition Charge (NTC) 6 20 Overrecovered Gas Costs 41 15 ------------------ ----------------- Total Regulatory Liabilities $522 $604 ================== =================
Note 4. Commitments and Contingent Liabilities Generation Asset Purchase In September 1999, Power announced an agreement to acquire all of Conectiv's interests in Salem Nuclear Generating Station (Salem) and Hope Creek Nuclear Generating Station (Hope Creek) and half of Conectiv's interest in Peach Bottom Atomic Power Station (Peach Bottom) for an aggregate purchase price of $15.4 million plus the net book value of Conectiv's nuclear fuel at closing. Payment of Power's obligation under such agreement has been guaranteed by PSEG. The majority of regulatory approvals necessary for this acquisition have been obtained, including the approval by the BPU. In order for Conectiv to complete the sale, the BPU must issue a second order to address Conectiv's stranded cost recovery. Conectiv has advised Power that it will not complete the transaction during the time that the appeal on PSE&G's Final Order remains pending. However, on October 6, 2000, Power entered into Wholesale Transaction Confirmation letter agreements with Conectiv under which Power will obtain 544MW of generation capacity and output representing the portion of Conectiv's interest in Salem, Hope Creek and Peach Bottom to be acquired. Under this agreement, Power will receive all revenue and pay all expenses associated with this 544MW of generating capacity and output through the date that the purchase transaction closes. Power has been advised by Conectiv that the Ratepayer Advocate, by letter to the BPU dated October 26, 2000, has objected to and challenged this financial transaction. PSE&G Manufactured Gas Plant Remediation Program PSE&G is currently working with New Jersey Department of Environmental Protection (NJDEP) under a program (Remediation Program) to assess, investigate and, if necessary, remediate environmental conditions at PSE&G's former manufactured gas plant sites. To date, 38 sites have been identified. The Remediation Program is periodically reviewed and revised by PSE&G based on regulatory requirements, experience with the Remediation Program and available remediation technologies. The long-term costs of the Remediation Program cannot be reasonably estimated, but experience to date indicates that costs of approximately $20 million per year could be incurred over a period of about 30 years and that the overall cost could be material. The costs for this remediation effort are recovered through the SBC. Passaic River Site The U.S. Environmental Protection Agency (EPA) has determined that a six mile stretch of the Passaic River in Newark, New Jersey is a "facility" within the meaning of that term under the Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 and that, to date, at least thirteen corporations, including PSE&G, may be potentially liable for performing required remedial actions to address potential environmental pollution at the Passaic River "facility". PSE&G and certain of its predecessors operated industrial facilities at properties within the Passaic River "facility", including the former Harrison Gas Plant and the Essex Generating Station. PSE&G cannot predict what action, if any, the EPA or any third party may take against PSE&G or Power, as the transferee of PSE&G's generation assets and liabilities, with respect to these matters, or in such event, what costs PSE&G and/or Power may incur to address any such claims. However, such costs may be material. PSEG Guarantees for ER&T As of November 1, 2000, approximately $224 million in guarantees have been either provided to or committed for trading counter-parties of Power's subsidiary, ER&T, following assignment of PSE&G's wholesale power contracts to ER&T to assure ER&T's creditworthiness in the marketplace. Energy Holdings Energy Holdings and/or its subsidiary, PSEG Global Inc. (Global), have guaranteed certain obligations of Global's affiliates, including equity funding for projects, performance or other obligations related to certain of their projects in an aggregate amount of approximately $368 million as of September 30, 2000. A substantial portion of such guarantees will be eliminated upon funding of project equity commitments. In addition, a subscription agreement for PSEG to purchase Global's capital stock secures approximately $3 million of such guarantees. Note 5. Financial Instruments and Risk Management PSEG's operations give rise to exposure to market risks from changes in commodity prices, interest rates, foreign currency exchange rates and securities prices. PSEG's policy is to use derivative financial instruments for the purpose of managing market risk consistent with its business plans and prudent business practices. Forward Purchase Agreement-PSEG In December 1999, as part of PSEG's share repurchase program, PSEG entered into a Forward Purchase Agreement with a third party which has purchased approximately 6.4 million shares at a cost of approximately $225 million. The transaction may be settled in cash or with shares of Common Stock. Any repurchase of these shares will not be reflected on PSEG's balance sheet until settlement of the transaction. PSEG does not expect to settle this transaction prior to the securitization financing which has been delayed to at least the first quarter of 2001 (See Note 2. Regulatory Issues and Accounting Impacts of Deregulation). Commodity-Related Instruments -- PSE&G and Power At September 30, 2000 and December 31, 1999, PSE&G and Power held or issued commodity and financial instruments that reduce exposure to price fluctuations from factors such as weather, environmental policies, changes in demand, changes in supply, state and Federal regulatory policies and other events. These instruments, in conjunction with owned electric generating capacity and physical gas supply contracts, are designed to cover estimated electric and gas customer commitments. PSE&G and Power use futures, forwards, swaps and options to manage and hedge price risk related to these market exposures. At September 30, 2000, Power had outstanding commodity financial instruments with a notional contract quantity of 55.6 million mWh of electricity and PSE&G had outstanding commodity financial instruments with a notional contract quantity of 58.2 million MMBTU of natural gas. At December 31, 1999, PSE&G had outstanding commodity financial instruments with a notional contract quantity of 36.1 million mWh of electricity and 25.5 million MMBTU of natural gas. Notional amounts are indicative only of the volume of activity and are not a measure of market risk. PSE&G's and Power's energy trading and related contracts have been marked to market and gains and losses from such contracts were included in earnings. PSE&G recorded $42 million and $3 million of unrealized gains in the nine months ended September 30, 2000 and 1999, respectively, and Power recorded $6 million of unrealized gains through September 30, 2000 related to these contracts. Commodity-Related Instruments -- Energy Holdings In June 2000, Energy Holdings' subsidiary, PSEG Energy Technologies Inc. (Energy Technologies) outsourced certain supply services under its retail gas service agreements. With this transaction, Energy Technologies has changed the manner in which it operates its energy and gas commodity business and at September 30, 2000 there were no electric or gas commodity financial instruments outstanding. Energy Holdings had recorded $1.7 million of gains in the nine months ended September 30, 2000 related to these instruments. Equity Securities -- Energy Holdings Energy Holdings' subsidiary, PSEG Resources Inc. (Resources) has investments in equity securities and limited partnerships. Resources carries its investments in equity securities at their approximate fair value as of the reporting date. Consequently, the carrying value of these investments is affected by changes in the fair value of the underlying securities. Fair value is determined by adjusting the market value of the securities for liquidity and market volatility factors, where appropriate. The aggregate fair values of such investments which had available market prices at September 30, 2000 and December 31, 1999 were $132 million and $131 million, respectively. The potential change in fair value resulting from a hypothetical 10% change in quoted market prices of these investments amounted to $10 million at September 30, 2000 and $11 million at December 31, 1999. Foreign Currencies -- Energy Holdings In accordance with their growth strategies, Global and Resources have made international investments of approximately $1.5 billion and $1.2 billion, respectively, as of September 30, 2000. Resources' international investments are primarily leveraged leases of assets located in the Netherlands, Australia, the United Kingdom, Germany, China and New Zealand with associated revenues denominated in U.S. dollars, and therefore, not subject to foreign currency risk. Global's international investments are primarily in projects that generate or distribute electricity in Argentina, Brazil, Chile, China, India, Italy, Peru, Poland and Venezuela. Investing in foreign countries involves certain additional risks. Economic conditions that result in higher comparative rates of inflation in foreign countries are likely to result in declining values in such countries' currencies. As currencies fluctuate against the U.S. dollar, there is a corresponding change in Global's investment value in terms of the U.S. dollar. Such change is reflected as an increase or decrease in the investment value and other comprehensive income, a separate component of stockholders' equity. Cumulatively through September 30, 2000, net foreign currency devaluations have reduced the reported amount of PSEG's total stockholders' equity and Energy Holdings' total stockholder's equity by approximately $188 million. Previously, Global had consolidated project debt totaling approximately $94.5 million associated with Global's 33% investment in a Brazilian distribution company that was non-recourse to Global, Energy Holdings and PSEG. The debt was denominated in the Brazilian Real and was indexed to a basket of currencies, including the U.S. dollar. The debt was refinanced in May 2000 with funds from Energy Holdings and a $190 million United States dollar denominated loan at the Brazilian distribution company, of which Global's share is $62 million. The functional currency of the distribution company is the Brazilian Real. Therefore its debt is subject to exchange rate risk as the Brazilian Real fluctuates with the United States dollar. Changes in the exchange rate cause the loan amount, as reported in the functional currency, to be marked upward or downward, with an offset to the income statement. Global has entered into a $60 million currency collar expiring on December 29, 2000 to mitigate the potential loss caused by a significant devaluation of the functional currency against the U.S. dollar. By entering into the collar, Global's maximum exposure related to the loan is limited to approximately $10 million in 2000. Interest Rates PSEG, PSE&G and Energy Holdings are subject to the risk of fluctuating interest rates in the normal course of business. Their policies are to manage interest rate risk through the use of fixed rate debt, floating rate debt and interest rate swaps. As of September 30, 2000, a hypothetical 10% change in market interest rates would result in a $9 million, $12 million and $2 million change in annual interest costs related to short-term and floating rate debt at PSEG, PSE&G and Energy Holdings, respectively. Note 6. Income Taxes PSEG's effective income tax rate is as follows:
Quarter Ended Nine Months Ended September 30, September 30, ------------------------- --------------------------- 2000 1999 (A) 2000 1999 (A) ---------- ----------- ------------ ----------- Federal tax provision at statutory rate................... 35.0% 35.0% 35.0% 35.0% New Jersey Corporate Business Tax, net of Federal benefit. 5.9% 5.9% 5.9% 5.9% Other-- net............................................... (3.7)% 0.6% (1.2)% 0.7% ---------- ----------- ------------ ----------- Effective Income Tax Rate............................. 37.2% 41.5% 39.7% 41.6% ========== =========== ============ =========== (A) Excludes the impact of the extraordinary charge recorded in 1999.
Note 7. Financial Information by Business Segments Basis of Organization The reportable segments disclosed herein were determined based on a variety of factors including the regulatory environment of each of PSEG's lines of business and the types of products and services offered. Effective with the unbundling of PSE&G's rates on August 1, 1999 and the deregulation of the electric generation portion of PSE&G's business, the basis of segment reporting changed. Estimates have been used to separate historical, pre-August 1, 1999, electric segment data into the Generation, ER&T and Transmission and Distribution segments of PSE&G's business. Information related to the segments of PSEG's business is detailed below:
- ---------------------------------------------------------------------------------------------------------------------------- Energy Consolidated Generation ER&T T & D Resources Global Technologies Other (A) Total ---------- ---- ----- --------- ------ ------------- --------- -------------- (Millions of Dollars) For the Quarter Ended September 30, 2000: Total Operating Revenues... $529 $35 $1,164 $41 $48 $94 $(386) $1,525 Segment Net Income (Loss).. 33 18 69 9 21 -- (8) 142 ========== ==== ====== ========= ====== ============ ========= ============== - ---------------------------------------------------------------------------------------------------------------------------- For the Quarter Ended September 30, 1999: Total Operating Revenues... $729 $17 $712 $21 $40 $87 $-- $1,606 Segment Income Before Extraordinary Item...... 169 7 29 6 20 (1) (9) 221 Extraordinary Item (14) -- -- -- -- -- -- (14) Segment Net Income (Loss).. 155 7 29 6 20 (1) (9) 207 ========== ==== ====== ========= ====== ============ ========= ============== - ---------------------------------------------------------------------------------------------------------------------------- For the Nine Months Ended September 30, 2000: Total Operating Revenues... $1,576 $101 $3,117 $132 $119 $310 $(385) $4,970 Segment Net Income (Loss).. 198 51 273 41 34 (12) (31) 554 ========== ==== ====== ========= ====== ============ ========= ============== - ---------------------------------------------------------------------------------------------------------------------------- For the Nine Months Ended September 30, 1999: Total Operating Revenues... $2,067 $52 $2,302 $118 $102 $195 $ 1 $4,837 Segment Income Before Extraordinary Item...... 393 24 117 51 35 (5) (25) 590 Extraordinary Item (3,204) -- 2,400 -- -- -- -- (804) Segment Net Income (Loss).. (2,811) 24 2,517 51 35 (5) (25) (214) ========== ==== ====== ========= ====== ============ ========= ============== - ---------------------------------------------------------------------------------------------------------------------------- As of September 30, 2000: Total Assets............... $3,055 $304 $14,814 $2,611 $1,859 $290 $(3,225) $19,708 ========== ==== ====== ========= ====== ============ ========= ============== - ---------------------------------------------------------------------------------------------------------------------------- As of December 31, 1999: Total Assets............... $3,055 $246 $11,423 $2,096 $1,715 $252 $228 $19,015 ========== ==== ====== ========= ====== ============ ========= ============== - ---------------------------------------------------------------------------------------------------------------------------- (A) PSEG's other activities include amounts applicable to PSEG (parent corporation), Energy Holdings (parent corporation), Enterprise Group Development Corporation and intercompany eliminations, primarily relating to intercompany transactions between Power and PSE&G (see Note 1. Basis of Presentation and Note 10. Related Party Transactions). The net losses primarily relate to financing and certain administrative and general costs at the parent corporations.
Geographic information for PSEG is disclosed below. The foreign investments and operations noted below were made through Energy Holdings. PSE&G does not have foreign investments or operations.
Revenues (1) Identifiable Assets -------------------------------------------------- ----------------------------------- Quarter Ended Nine Months Ended September 30, September 30, September 30, December 31, ---------------------- ----------------------- ----------------- -------------- 2000 1999 2000 1999 2000 1999 --------- -------- ---------- --------- ----------------- -------------- United States................. $1,478 $1,569 $4,830 $4,734 $17,065 $16,595 Foreign Countries (2)......... 47 37 140 103 2,643 2,420 --------- -------- ---------- --------- ----------------- -------------- Total.................... $1,525 $1,606 $4,970 $4,837 $19,708 $19,015 --------- -------- ---------- --------- ----------------- -------------- Identifiable investments in foreign countries include amounts from: Netherlands $793 $623 Chile and Peru 522 520 Argentina 358 356 Brazil (3) 317 330 Other 653 591 ----------------- -------------- Total $2,643 $2,420 ================= ============== (1) Revenues are attributed to countries based on the locations of the investments. Global's revenue includes its share of the net income from joint ventures recorded under the equity method of accounting. (2) Total assets are net of foreign currency translation adjustment of $209 million (pretax) as of September 30, 2000 and $(222) million (pretax) as of December 31, 1999. (3) Amount is net of foreign currency translation adjustment of $152 million (pretax) as of September 30, 2000 and $(189) million (pretax) as of December 31, 1999.
Note 8. Accounting Matters In December 1999, the SEC released Staff Accounting Bulletin No. 101 (SAB 101) which provides guidance on the timing of revenue recognition in financial statements. The basic guidelines on revenue recognition state that revenue should not be recognized until it is realized or realizable and earned. SAB 101 provides specific criteria to assist in this determination. PSEG, PSE&G and Energy Holdings are in the process of determining the possible effects of the adoption of SAB 101 on existing revenue recognition practices. The adoption of SAB 101 is not expected to have a material adverse effect on the financial statements of PSEG, PSE&G or Energy Holdings. In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities". In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities -- Deferral of the Effective Date of FASB Statement No. 133" (SFAS 137) to defer the effective date of SFAS 133, for one year. Consequently, SFAS 133 will be effective for all fiscal quarters beginning after January 1, 2001. The FASB also decided to defer by one year the transition date regarding embedded derivatives in SFAS 133. In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities" (SFAS 138) which amends certain provisions of SFAS 133 to clarify four areas causing difficulties in implementation. The amendment included expanding the normal purchase and sale exemption for supply contracts, permitting the offsetting of certain intercompany foreign currency derivatives and thus reducing the number of third party derivatives, permitting hedge accounting for foreign-currency denominated assets and liabilities, and redefining interest rate risk to reduce sources of ineffectiveness. A team has been appointed to implement SFAS 133 for PSEG, PSE&G and Energy Holdings. This team has been educating both financial and non-financial personnel, inventorying embedded derivatives and addressing various other SFAS 133 related issues. PSEG, PSE&G and Energy Holdings will adopt SFAS 133 and the corresponding amendments under SFAS 138 on January 1, 2001. Management is currently determining the impact of SFAS 133 on PSEG's, PSE&G's and Energy Holdings' consolidated results of operations and financial position. This statement should have no impact on consolidated cash flows. At this time, the impacts of SFAS 133 and SFAS 138 have not been quantified; however, all derivatives will be recognized at fair value and the impact on the financial statements could be material. For derivatives that do not qualify for hedge accounting treatment and for any ineffectiveness that will result from hedging transactions, a cumulative amount will be recorded in the Income Statement. For cash flow hedges that qualify for hedge accounting, PSEG, PSE&G and Energy Holdings will recognize the appropriate amount in the equity section of the balance sheet in Other Comprehensive Income. Finally, for derivatives where gains or losses will be payable or recoverable through regulated rates, a regulatory liability or asset will be established. Note 9. Comprehensive Income Comprehensive Income (Loss), Net of Tax:
Quarter Ended Nine Months Ended September 30, September 30, ---------------------------- ------------------------ 2000 1999 2000 1999 ----------- ------------ --------- ---------- (Millions of Dollars) Net income (loss)................................... $142 $207 $554 $(214) Foreign currency translation, net of tax (A)........ (8) (32) 12 (159) ----------- ------------ --------- ---------- Comprehensive income/(loss).................... $134 $175 $566 $(373) =========== ============ ========= ========== (A) Net of tax of $0.9 million and $3.6 million for the quarters ended September 30, 2000 and 1999, respectively, and $(1.3) million and $17.7 million for the nine months ended September 30, 2000 and 1999, respectively.
Note 10. Related Party Transactions PSE&G and Power PSE&G's transfer of its electric generating assets was in exchange for a Promissory Note from Power in an amount equal to the total purchase price of $2.786 billion. Interest on the note is payable at an annual rate of 14.23%, which represents PSE&G's weighted average cost of capital. From August 21, 2000 to September 30, 2000, Power has paid interest of approximately $44 million to PSE&G. Effective with the transfer, Power charges PSE&G for the energy and capacity provided to meet PSE&G's BGS requirements. Through September 30, 2000, Power has charged PSE&G approximately $386 million for PSE&G's BGS requirements. As of September 30, 2000, PSE&G's payable to Power relating to these costs was approximately $161 million. Also through September 30, 2000, PSE&G sold energy and capacity to Power at the market price of approximately $29 million, which PSE&G purchased under various non-utility generation (NUG) contracts at a cost of approximately $66 million. PSE&G, as a result of the Final Order, has established an NTC to recover the above market costs related to these NUG contracts. The difference between PSE&G's cost and their recovery of costs through the NTC and sales to Power, which are at the locational marginal price (LMP) for energy and at wholesale market prices for capacity, is deferred as a regulatory asset (see Note 3. Regulatory Assets and Liabilities). Energy Holdings Approximately 90% of the electricity generated by the Eagle Point Power Plant, a 50% owned equity investment of Global, is sold to PSE&G under a 25-year power purchase contract terminating in May 2016. Global's share of partnership revenues received from PSE&G represented approximately $17 million and $48 million for the quarter and nine months ended September 30, 2000 and approximately $14 million and $40 million for the quarter and nine months ended September 30, 1999. ================================================================================ PUBLIC SERVICE ELECTRIC AND GAS COMPANY ================================================================================ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Notes to Consolidated Financial Statements of PSEG are incorporated by reference insofar as they relate to PSE&G and its subsidiaries: Note 1. Basis of Presentation Note 2. Regulatory Issues Note 3. Regulatory Assets and Liabilities Note 4. Commitments and Contingent Liabilities Note 5. Financial Instruments and Risk Management Note 7. Financial Information by Business Segments Note 8. Accounting Matters Note 10. Related Party Transactions Note 6. Income Taxes PSE&G's effective income tax rate is as follows:
Quarter Ended Nine Months Ended September 30, September 30, ------------------------- ------------------------- 2000 1999 (A) 2000 1999 (A) ---------- ----------- --------- ----------- Federal tax provision at statutory rate.................. 35.0% 35.0% 35.0% 35.0% New Jersey Corporate Business Tax, net of Federal benefit 5.9% 5.9% 5.9% 5.9% Other-- net.............................................. (4.4)% 1.3% (1.0)% 1.4% ---------- ----------- ----------- ----------- Effective Income Tax Rate............................ 36.5% 42.2% 39.9% 42.3% ========== =========== ========= =========== (A) Excludes the impact of the extraordinary charge recorded in 1999.
Note 9. Comprehensive Income For the quarters ended September 30, 2000 and 1999, PSE&G's comprehensive income equaled the consolidated net income of PSE&G. ================================================================================ PSEG ENERGY HOLDINGS INC. ================================================================================ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Notes to Consolidated Financial Statements of PSEG are incorporated by reference insofar as they relate to Energy Holdings and its subsidiaries: Note 1. Basis of Presentation Note 2. Regulatory Issues Note 3. Regulatory Assets and Liabilities Note 4. Commitments and Contingent Liabilities Note 5. Financial Instruments and Risk Management Note 7. Financial Information by Business Segments Note 8. Accounting Matters Note 10. Related Party Transactions Note 6. Income Taxes Energy Holdings' effective tax rate was 28.5% and 35.4% for the nine months ended September 30, 2000 and September 30, 1999, respectively. Energy Holdings' effective tax rate differs from the statutory federal income tax rate of 35.0% primarily due to the imposition of state taxes and the accruals at the rate of 10% of Global's foreign income due to the incremental cost associated with the repatriation of foreign earnings. Energy Holdings does not consolidate foreign projects and there is no foreign income tax reflected in income tax expense in Energy Holdings' consolidated financial statements at September 30, 2000. Note 9. Comprehensive Income Comprehensive Income (Loss), Net of Tax:
Quarter Ended Nine Months Ended September 30, September 30, ------------------------- ------------------------ 2000 1999 2000 1999 ----------- ---------- ---------- -------- (Millions of Dollars) Earnings/(loss)...................................... $21 $18 $41 $63 Foreign currency translation, net of tax (A)......... (8) (32) 12 (159) ----------- ---------- ---------- -------- Comprehensive income/(loss)..................... $13 $(14) $53 $(96) =========== ========== ========== ======== (A) Net of tax of $0.9 million and $3.6 million for the quarters ended September 30, 2000 and 1999, respectively, and $(1.3) million and $17.7 million for the nine months ended September 30, 2000 and 1999, respectively.
================================================================================ PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED ================================================================================ ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Following are the significant changes in or additions to information reported in the Public Service Enterprise Group Incorporated (PSEG) and Public Service Electric and Gas Company (PSE&G) 1999 Annual Report on Form 10-K, Quarterly Reports on Form 10-Q for the quarters ended March 31, 2000 and June 30, 2000, Current Reports on Form 8-K filed August 21, 2000, September 5, 2000, October 18, 2000 and October 27, 2000 and Amended Current Report on Form 8-K/A filed November 1, 2000 and the PSEG Energy Holdings Inc.'s (Energy Holdings) Registration Statement filed on Form S-4 on June 29, 2000, Quarterly Report on Form 10-Q for the quarter ended June 30, 2000 and Current Reports on Form 8-K filed October 18, 2000 and October 27, 2000, affecting the consolidated financial condition and the results of operations of PSEG, PSE&G, and Energy Holdings and their subsidiaries. This discussion refers to the Consolidated Financial Statements (Statements) and related Notes to Consolidated Financial Statements (Notes) of PSEG, PSE&G and Energy Holdings and should be read in conjunction with such Statements and Notes. Overview and Future Outlook Following the enactment of the New Jersey Electric Discount and Energy Competition Act (Energy Competition Act), the New Jersey Board of Public Utilities (BPU) rendered its summary decision relating to PSE&G's rate unbundling, stranded costs and restructuring proceedings (Summary Order) and subsequently issued PSEG's Final Order in these matters, providing, among other things, for the transfer to an affiliate of all of its electric generation facilities, plant and equipment for $2.443 billion and all other related property, including materials, supplies and fuel at the net book value thereof, together with associated rights and liabilities. Also in the Final Order, the BPU concluded that PSE&G should recover up to $2.94 billion (net of tax) of its generation-related stranded costs, through securitization of $2.4 billion and an opportunity to recover up to $540 million (net of tax) of its unsecuritized generation-related stranded costs on a present value basis. The $540 million is subject to recovery by various means, including an explicit market transition charge (MTC). Following the issuance of the Final Order, the BPU issued its order approving PSE&G's petition relating to the proposed securitization transaction (Finance Order) which authorized, among other things, the issuance and sale of $2.525 billion of transition bonds, including an estimated $125 million of transaction costs. The Energy Competition Act, the BPU's Summary Order and Final Order and the related BPU proceedings, referred to as the Energy Master Plan Proceedings, opened the New Jersey energy markets to competition by allowing all New Jersey retail electric customers to, among other things, select their electric supplier commencing August 1, 1999 and all New Jersey retail gas customers to select their gas supplier commencing January 1, 2000. In October and November 1999, two appeals of certain provisions of the Final Order and two appeals of certain provisions of the related Finance Order were filed in the Appellate Division of the New Jersey Superior Court (Appellate Division) on behalf of several customers and the New Jersey Office of the Ratepayer Advocate. In an order issued April 13, 2000, a three-judge Appellate Division panel unanimously affirmed the Final Order and Finance Order. Thereafter, the appellants filed a Petition requesting Certification and a Notice of Appeal with the New Jersey Supreme Court seeking review of the Appellate Division decision. On July 14, 2000, the New Jersey Supreme Court granted Certification with respect to both matters. Oral arguments for all parties were held on November 8, 2000. As a result of the Supreme Court's review, PSE&G's securitization transaction has been delayed at least until the first quarter of 2001, causing a delay in the implementation of the Securitization Transition Charge (STC) which would have reduced MTC. In order to recognize the recovery of the allowed unsecuritized stranded costs over the transition period, PSEG has recorded a charge to net income of $52 million, after tax, in the third quarter of 2000 for the cumulative amount of estimated collections in excess of the allowed unsecuritized stranded costs from August 1, 1999 through September 30, 2000. Any such collections in excess of the allowed unsecuritized stranded costs at the end of the transition period will be credited to the Societal Benefits Clause (SBC) as required by the Final Order. While PSE&G continues to believe that the Appellate Division's unanimous decision was correct, it can give no assurances with respect to the ultimate timing or disposition of these matters by the New Jersey Supreme Court. An adverse outcome to this review or substantial additional delays beyond the first quarter of 2001, could have a material adverse impact on PSEG's, PSE&G's and Energy Holdings' financial condition, results of operations and net cash flows and could require revisions to financing plans, revisions to business plans delaying or restricting current growth strategies and the imposition of other operational and/or financial measures. As a result of the Final Order, PSEG organized PSEG Power LLC (Power) and its subsidiaries to, among other things, acquire, own and operate PSE&G's electric generation assets. PSE&G, pursuant to the Final Order has transferred its electric generating facilities to Power and its wholesale power contracts to PSEG Energy Resources and Trade LLC (ER&T), a wholly-owned subsidiary of Power. The generating assets were transferred at the price specified in the BPU order - $2.443 billion plus $343 million for other generating related assets and liabilities. The parties have agreed to execute a supplemental agreement reflecting any change in the value of the assets if required as a result of the New Jersey Supreme Court review, discussed above. The transfer, which was effective August 1, 2000, was in exchange for a Promissory Note from Power in an amount equal to the purchase price. Until such note is paid, the assets transferred remain subject to the lien of PSE&G's First and Refunding Mortgage. PSEG has positioned Energy Holdings as a major part of its planned growth strategy. In order to achieve this strategy, PSEG Global Inc. (Global) will focus on generation and distribution investments within targeted high-growth regions. A significant portion of Global's growth is expected to occur internationally due to the current and anticipated growth in electric capacity required in certain regions of the world. PSEG Resources Inc. (Resources) will utilize its market access, industry knowledge and transaction structuring capabilities to expand its energy-related financial investment portfolio. PSEG Energy Technologies, Inc. (Energy Technologies) will continue to provide heating, ventilating and air conditioning (HVAC) contracting and other energy-related services to industrial and commercial customers in the Northeastern and Middle Atlantic United States. Effective August 1, 2000, the presentation of Electric Revenues and Electric Energy Costs in the Consolidated Statements of Income has changed, due to PSE&G's transfer of its electric generating facilities to Power and wholesale power contracts to ER&T. Effective with the transfer, PSE&G entered into a contract with Power to obtain the energy and capacity necessary to meet PSE&G's basic generation service (BGS) obligation. As a result, PSE&G's Electric Energy Costs will now reflect PSE&G's cost under the contracted price with Power and Power's Electric Energy Costs will reflect the actual cost of generation. PSEG eliminates these intercompany revenues and expenses in their consolidated financial statements. Under the BGS contract PSE&G pays a fixed price for energy and capacity provided by Power and charges such costs to its BGS customers. As a result, PSE&G is no longer subject to price risk related to market exposures for its estimated electric commitments. Following the transfer of generation assets, Power has entered into forwards, futures, swaps and options to manage price risk exposure for its commitments to meet PSE&G's BGS obligation in addition to Power's other supply contracts. Results of Operations In the following discussion for the quarter and nine months ended September 30, 2000, as compared to the same periods in the prior year, Management has combined certain current year results for PSE&G and Power, including intercompany eliminations, to provide a better comparison to the prior year results, prior to the generation asset transfer to Power, when operations were centralized under PSE&G.
Earnings (Losses) -------------------------------------------------------------- Quarter Ended Nine Months Ended September 30, September 30, --------------------------- --------------------------- 2000 1999 2000 1999 ----------- ------------ ----------- ------------ (Millions of Dollars) PSE&G, Before Extraordinary Item............. $97 $203 $494 $527 PSE&G Extraordinary Item..................... -- (14) -- (804) ----------- ------------ ----------- ------------ Total PSE&G............................. 97 189 494 (277) Energy Holdings.............................. 21 18 41 63 Power........................................ 21 -- 21 -- PSEG*........................................ 3 -- (2) -- ----------- ------------ ----------- ------------ Total PSEG.............................. $142 $207 $554 $(214) =========== ============ =========== ============ *Includes after tax effect of interest on certain financing transactions.
Contribution to Earnings Per Share (Basic and Diluted) -------------------------------------------------------------- Quarter Ended Nine Months Ended September 30, September 30, --------------------------- --------------------------- 2000 1999 2000 1999 ----------- ----------- ----------- ------------ PSE&G, Before Extraordinary Item............. $0.45 $0.93 $2.29 $2.40 PSE&G Extraordinary Item..................... -- (0.06) -- (3.65) ------------ ----------- ----------- ----------- Total PSE&G............................. 0.45 0.87 2.29 (1.25) Energy Holdings.............................. 0.10 0.08 0.19 0.28 Power........................................ 0.10 -- 0.10 -- PSEG*........................................ 0.01 -- (0.01) -- ------------ ----------- ----------- ----------- Total PSEG.............................. $0.66 $0.95 $2.57 $(0.97) ============ =========== =========== =========== *Includes after tax effect of interest on certain financing transactions.
Basic and diluted earnings per share of PSEG common stock (Common Stock) were $0.66 for the quarter ended September 30, 2000, a decrease of $0.35 per share from the comparable 1999 period, excluding the extraordinary charge. Basic and diluted earnings per share of Common Stock were $2.57 for the nine months ended September 30, 2000, a decrease of $0.11 per share from the comparable 1999 period, excluding the extraordinary charge. Excluding the extraordinary charge from 1999 relating to deregulation and the discontinuation of Statement of Financial Accounting Standards (SFAS) No. 71, "Accounting for the Effects of Certain Types of Regulation" (SFAS 71), PSE&G's and Power's combined contributions to earnings per share of Common Stock for the quarter and nine months ended September 30, 2000 decreased $0.38 and $0.01 from the comparable 1999 periods, respectively. The decrease was primarily due to the $52 million charge to income related to MTC recovery (See Overview and Future Outlook). Lower depreciation and amortization resulting from the amortization of the Excess Depreciation Reserve beginning in January 2000 helped to offset some of the decrease. Energy Holdings' contribution to earnings per share of Common Stock increased $0.02 and decreased $0.09 for the quarter and nine months ended September 30, 2000, respectively, from the comparable 1999 periods. The increase for the quarter was primarily due to Resources' higher leveraged lease income and a prior year write-down of other investments in Global's portfolio. The decrease for the nine months ended September 30, 2000, as compared to the same period in 1999, is primarily due to lower unrealized gains from Resources' investment portfolio. As a result of PSEG's stock repurchase program which began in September 1998, earnings per share of Common Stock for the quarter and nine months ended September 30, 2000 increased $0.01 and $0.06, respectively, from the comparable 1999 periods. A total of approximately 17.8 million shares had been repurchased at a cost of approximately $679 million under this program as of September 30, 2000. PSE&G and Power--Revenues Electric
Electric Revenues -------------------------------------------------------------- Quarter Ended Nine Months Ended September 30, September 30, --------------------------- --------------------------- 2000 1999 2000 1999 ----------- ------------ ----------- ------------ (Millions of Dollars) PSE&G........................................ $1,019 $1,244 $3,019 $3,230 Power........................................ 429 -- 429 -- Intercompany Eliminations*................... (386) -- (386) -- ----------- ------------ ----------- ------------ Total Electric Revenues................. $1,062 $1,244 $3,062 $3,230 =========== ============ =========== ============ * Represents the revenue Power receives from PSE&G for BGS and MTC.
Revenues decreased $182 million or 15% and $168 million or 5% for the quarter and nine months ended September 30, 2000 from the comparable periods in 1999 primarily due to an $88 million pre-tax charge to income related to MTC recovery combined with the effects of the 5% rate reduction required by the Final Order which decreased generation revenues for the quarter and nine months ended September 30, 2000 by approximately $27 million and $123 million, respectively. In addition, customer migration from PSE&G could further reduce PSE&G's future basic generation service (BGS) obligation which would result in decreased BGS revenues for Power. However, such customer migration also creates the opportunity for Power to sell available energy and capacity into the wholesale market. As of September 30, 2000, approximately 8% of the customer load traditionally served by PSE&G was being served by third party suppliers. Gas Revenues increased $66 million or 23% and $155 million or 12% for the quarter and nine months ended September 30, 2000 from the comparable periods in 1999, respectively, primarily due to the increasing prices for natural gas. This is due to the fact that under certain transportation only contracts, PSE&G is responsible only for delivery of gas to its customers. Such customers are responsible for payment to PSE&G for the cost of the commodity and as PSE&G's costs for these customers increase, the customer's rates will increase. PSE&G and Power--Expenses Electric Energy Costs
Electric Energy Costs -------------------------------------------------------------- Quarter Ended Nine Months Ended September 30, September 30, --------------------------- --------------------------- 2000 1999 2000 1999 ----------- ------------ ----------- ------------ (Millions of Dollars) PSE&G........................................ $603 $309 $1,076 $765 Power........................................ 82 -- 82 -- Intercompany Eliminations*................... (386) -- (386) -- ----------- ------------ ----------- ------------ Total Electric Energy Costs............. $299 $309 $772 $765 =========== ============ =========== ============ * Represents the amount PSE&G pays to Power for BGS and MTC.
Electric Energy Costs decreased $10 million or 3% and increased $7 million or 1% for the quarter and nine months ended September 30, 2000 from the comparable 1999 periods, respectively. Gas Costs Gas Costs increased $61 million or 30% and $151 million or 17% for the quarter and nine months ended September 30, 2000 from the comparable 1999 periods, respectively, primarily due to the increasing prices for natural gas. Operation and Maintenance
Operation and Maintenance -------------------------------------------------------------- Quarter Ended Nine Months Ended September 30, September 30, --------------------------- --------------------------- 2000 1999 2000 1999 ----------- ------------ ----------- ------------ (Millions of Dollars) PSE&G........................................ $185 $382 $958 $1,141 Power........................................ 212 -- 212 -- ----------- ------------ ----------- ------------ Total Operation and Maintenance......... $397 $382 $1,170 $1,141 =========== ============ =========== ============
Operation and Maintenance expense increased $15 million or 4% and $29 million or 3% for the quarter and nine months ended September 30, 2000 from the comparable 1999 periods, respectively. The increases were primarily due to increased costs related to Power's acquisitions in 2000 and higher transmission and distribution costs including higher materials and support services. Depreciation and Amortization
Depreciation and Amortization -------------------------------------------------------------- Quarter Ended Nine Months Ended September 30, September 30, --------------------------- --------------------------- 2000 1999 2000 1999 ----------- ------------ ----------- ------------ (Millions of Dollars) PSE&G........................................ $60 $120 $230 $405 Power........................................ 26 -- 26 -- ----------- ------------ ----------- ------------ Total Depreciation and Amortization..... $86 $120 $256 $405 =========== ============ =========== ============
Depreciation and Amortization expense decreased $34 million or 28% and $149 million or 37% for the quarter and nine months ended September 30, 2000 from the comparable 1999 periods, respectively. The decrease was primarily due to the amortization of the regulatory liability for the excess electric distribution depreciation reserve at PSE&G, which commenced on January 1, 2000 and amounted to approximately $31 million and $94 million for the quarter and nine months ended September 30, 2000. Also contributing to the decrease for the nine months ended September 30, 2000, as compared to the same period in 1999, was approximately $60 million of lower depreciation resulting from the lower net book value balances of the generation-related assets, which were transferred to Power, which were reduced as of April 1, 1999 as a result of the impairment recorded pursuant to SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" (SFAS 121). Once the securitization transaction is complete, PSE&G will begin to amortize the regulatory asset recorded for stranded costs with such amortization expense offsetting these decreases. Interest Expense PSE&G's interest expense decreased $46 million or 47% and $38 million or 13% for the quarter and nine months ended September 30, 2000 from the comparable 1999 periods, respectively. The decrease is primarily due to interest income received from Power for the Promissory Note (See Note 10. Related Party Transactions). Income Taxes Income Taxes decreased $96 million or 63% and $60 million or 15% for the quarter and nine months ended September 30, 2000 from the comparable 1999 periods, primarily due to lower pre-tax operating income resulting from the transfer of the generation portion of the business to Power. Energy Holdings Energy Holdings--Revenues Revenues increased $35 million and $146 million for the quarter and nine months ended September 30, 2000, respectively, as compared to the same periods in 1999. The increases primarily resulted from Resources' higher leveraged lease income from new leveraged lease investments, Energy Technologies' additional revenues from acquisitions of HVAC and mechanical service contracting companies in 2000 and 1999 and Global's higher income from partnerships. Energy Holdings--Operating Expenses Operating expenses decreased $35 million for the quarter ended September 30, 2000 from the comparable period in 1999 primarily due to Global's prior year write-down of investments of $44 million. Operating expenses increased $83 million for the nine months ended September 30, 2000 from the comparable period in 1999, primarily due to the addition of operating expenses from the HVAC and mechanical service contracting companies acquired by Energy Technologies in 2000 and 1999. This increase in operating expenses was partially offset by the write-down of Global's investments in 1999. Energy Holdings--Interest Expense and Preferred Dividends Net financing expenses increased $6 million and $37 million for the quarter and nine months ended September 30, 2000, respectively. Both increases were primarily due to higher levels of debt required to finance investment and acquisition activities at Global and Resources and higher interest rates. Energy Holdings - Earnings Before Interest and Taxes (EBIT) Contribution The results of operations for each of Energy Holdings' business segments are explained below with reference to the EBIT contribution. Energy Holdings borrows on the basis of a combined credit profile to finance the activities of its subsidiaries. As such, the capital structure of each of the businesses is managed by Energy Holdings. Debt at each subsidiary is evidenced by demand notes with Energy Holdings and PSEG Capital Corporation (PSEG Capital).
Quarter Ended Nine Months Ended September 30, September 30, --------------------------- --------------------------- 2000 1999 2000 1999 ----------- ----------- ----------- ----------- (Millions of Dollars) EBIT: Global............................. $36 $44 $85 $85 Resources.......................... 35 19 120 111 Energy Technologies................ 1 (1) (15) (6) Other.............................. (3) 1 (5) 1 ----------- ----------- ----------- ----------- Total EBIT.............................. $69 $63 $185 $191 =========== =========== =========== ===========
Global Global's investments consist primarily of minority ownership positions in projects and joint ventures, none of which it consolidates. Other than fees collected for providing operations and maintenance services, Global's revenues primarily represent its pro-rata ownership share of net income generated by project affiliates which is accounted for by the equity method of accounting. The expenses in the table below are those required to develop projects and administrative and general expenses required to operate the business as a whole. Project operating expenses are not reported as direct expenses of Global but are deducted to arrive at net income of project affiliates, a pro-rata share of which is reported as revenues by Global.
Quarter Ended Nine Months Ended September 30, September 30, --------------------------- --------------------------- 2000 1999 2000 1999 ----------- ----------- ----------- ----------- (Millions of Dollars) Revenues........................... $48 $40 $119 $102 Expenses........................... 13 61 37 88 ----------- ----------- ----------- ----------- Operating Income................... 35 (21) 82 14 Other Income....................... 1 65 3 71 ----------- ----------- ----------- ----------- Total EBIT.............................. $36 $44 $85 $85 =========== =========== =========== ===========
Global's EBIT contribution decreased $8 million for the quarter ended September 30, 2000 from the comparable period in 1999. The decrease was primarily due to the gain on sale of its interest in a Newark, New Jersey co-generation facility in 1999, partially offset by the write-down of other investments in Global's portfolio. Global's EBIT contribution was $85 million for the nine months ended September 30, 2000 and 1999. For the nine months ended September 30, 2000, Global's EBIT contribution was primarily the result of higher income from its new investments in domestic generation and foreign distribution companies. Global's EBIT contribution for 1999 was primarily impacted by the gain on the sale of its interest in a Newark, New Jersey co-generation facility, partially offset by the write-down of other investments in Global's portfolio. Resources Resources earns its leveraged lease revenues primarily from rental payments and tax benefits associated with such transactions. As a passive investor in limited partnership project financing transactions, Resources recognizes revenue from its pro-rata share of the income generated by these investments. As an owner of beneficial interests in two leveraged buyout funds, Resources recognizes revenue as the share prices of public companies in the leveraged buyout funds fluctuate. In addition, revenue is recognized as companies in the fund distribute dividend income through the fund to the investors and as the fund liquidates its holdings.
Quarter Ended Nine Months Ended September 30, September 30, ------------------------- --------------------------- 2000 1999 2000 1999 ----------- ---------- ----------- ----------- (Millions of Dollars) Revenues.................................. $41 $21 $132 $118 Expenses.................................. 6 2 12 7 ---------- ---------- ----------- ----------- Total EBIT..................................... $35 $19 $120 $111 ========== ========== =========== ===========
Resources' EBIT contribution increased $16 million for the quarter ended September 30, 2000 from the comparable period in 1999. The increase was primarily due to higher income from new leveraged lease investments. Resources' EBIT contribution increased $9 million for the nine months ended September 30, 2000 from the comparable period in 1999. The increase was primarily due to higher income from new leveraged lease investments, partially offset by lower investment gains due to sales in 1999 of securities in leveraged buyout funds. Energy Technologies Energy Technologies earns its revenues from energy sales and the sale of energy-related equipment and services.
Quarter Ended Nine Months Ended September 30, September 30, --------------------------- ---------------------------- 2000 1999 2000 1999 ----------- ----------- ------------ ------------ (Millions of Dollars) Revenues................................... $94 $87 $310 $195 Expenses................................... 93 88 325 201 ----------- ----------- ------------ ------------ Total EBIT...................................... $1 $(1) $(15) $(6) =========== =========== ============ ============
Energy Technologies' EBIT contribution increased $2 million for the quarter ended September 30, 2000 from the comparable period in 1999. Revenues increased $7 million and operating expenses increased $5 million primarily due to acquisitions of HVAC and mechanical service contracting companies in 2000 and 1999. Energy Technologies' EBIT contribution decreased $9 million for the nine months ended September 30, 2000 from the comparable period in 1999. Revenues increased $115 million and operating expenses increased $124 million primarily due to acquisitions of HVAC and mechanical service contracting companies in 2000 and 1999. Also included in the increased operating expenses was a restructuring charge to income for approximately $6.6 million for the nine months ended September 30, 2000. Of this amount approximately $2 million related to employee severance costs applicable to the termination of approximately 60 employees, $1.6 million related to deferred commodity transportation costs and $3.0 million related to the write-off of computer hardware and software. Liquidity and Capital Resources PSEG is a holding company and, as such, has no operations of its own. The following discussion of PSEG's liquidity and capital resources is on a consolidated basis, noting the uses and contributions of PSEG's three direct operating subsidiaries in 2000, PSE&G, Power and Energy Holdings. PSE&G and Power As noted previously, on July 14, 2000, the New Jersey Supreme Court decided to hear appeals of the BPU Energy Master Plan decision. As a result, a planned $2.525 billion securitization financing by PSE&G has been delayed at least until the first quarter of 2001, and a planned financing by Power has been similarly delayed. Going forward, cash generated from PSE&G's transmission and distribution business is expected to provide the majority of the funds for PSE&G's business needs. Power's initial external financing will be delayed until after the securitization financing. Following this initial financing, Power's capital needs will be funded with cash generated from operations and may be supplemented with external financings and equity infusions from PSEG as dictated by Power's growth strategy. Also as a result of the delay in securitization, PSEG and PSE&G will utilize various medium-term financings to refinance existing debt and maturities. The BPU has authorized PSE&G to issue through December 2001 up to $1 billion in long-term debt with maturities not to exceed three years for the purposes of redeeming or refunding prior debt. On September 17, 1999, the BPU issued its Finance Order which authorized, among other things, the imposition of a non-bypassable transition bond charge on PSE&G's customers; the sale of PSE&G's property right in such charge created by the Energy Competition Act to a bankruptcy-remote financing entity; the issuance and sale of $2.525 billion of transition bonds by such entity as consideration for such property right, including an estimated $125 million of transaction costs; and the application by PSE&G of the transition bond proceeds to retire outstanding debt and/or equity. Pending a favorable resolution of matters now before the New Jersey Supreme Court, PSEG and PSE&G do not expect such sale of transition bonds and the receipt of proceeds prior to the first quarter of 2001. Both the right of PSE&G to receive the bondable transition charge pursuant to the securitization transaction and the proceeds from the Promissory Note related to the transfer of its generation-related assets to Power are property subject to the lien of PSE&G's First and Refunding Mortgage (Mortgage). All such property will be released from the lien of the Mortgage at the time of receipt of the cash proceeds from each such sale. In accordance with the provisions of the Mortgage, the net proceeds from each sale of such released property will be deposited with the Trustee. The Mortgage authorizes PSE&G to exercise one or more of the following options as to the application of proceeds of such released property, at its sole discretion: 1. Withdraw funds for corporate use by utilizing additions and improvements and/or retired bonds. (Option 1) 2. Direct the Trustee to invest the proceeds in U.S. Government Securities. (Option 2) 3. Direct the Trustee to purchase its Mortgage Bonds at the lowest prices obtainable, at or below par value. If the Trustee is unable to purchase sufficient Mortgage Bonds to exhaust such proceeds deposited with it, the balance may be applied on a pro rata basis towards the redemption of eligible series of Mortgage Bonds outstanding at par. (Option 3) At September 30, 2000, PSE&G had a total of $3.4 billion of Mortgage Bonds outstanding, of which $2.6 billion are taxable registered Mortgage Bonds subject to the special redemption provisions outlined in Option 3 (Redeemable Bonds). Further, $777 million of the Mortgage Bonds outstanding are tax-exempt Pollution Control Bonds and $15 million are two series of taxable coupon Mortgage Bonds due 2037 (Coupon Bonds). Neither the Pollution Control Bonds nor the Coupon Bonds are subject to the special redemption provisions outlined in Option 3. PSE&G has not yet made a final decision as to the amount and the manner in which it will retire or redeem its Mortgage Bonds. Such a decision will be made on or about the time the proceeds from securitization and the payment of the Promissory Note related to the sale of the generation-related assets to Power are deposited with the Trustee, on the basis of market conditions and other factors existing at that time (see Overview and Future Outlook). Based on current information, a likely utilization of the options available to PSE&G, as noted above, could be as follows: A. Withdraw $2.4 billion of net proceeds from securitization under Option 1, above. These proceeds would be used to: i. Redeem $123.5 million of Pollution Control Bonds now redeemable; ii. Retire PSE&G's outstanding short-term debt; and iii. Reduce PSE&G common and/or preferred securities with the balance of proceeds. B. Withdraw the proceeds from the payment of the Promissory Note related to the generation-related asset sale to Power under Option 1. These proceeds will be used to reduce PSE&G common and/or preferred securities. As previously reported, in anticipation of securitization, PSEG's Board of Directors has authorized the repurchase of up to an aggregate of 30 million shares of Common Stock in the open market. At September 30, 2000, PSEG had repurchased approximately 17.8 million shares of Common Stock, at a cost of approximately $679 million. The repurchased shares have been held as treasury stock or used for other corporate purposes. In December 1999, PSEG entered into a Forward Purchase Agreement with a third party which has purchased approximately 6.4 million shares at a cost of approximately $225 million. The transaction may be settled in cash or with shares of Common Stock. Any repurchase of these shares will not be reflected on PSEG's balance sheet until settlement of the transaction. Market conditions and the availability of alternative investments will dictate if and when more shares of Common Stock will be repurchased under this authorization. Dividend payments on Common Stock for the nine month periods ended September 30, 2000 and 1999 were $1.62 per share and totaled approximately $348 million and $357 million for the nine months ended September 30, 2000 and 1999, respectively. PSEG has not increased its dividend rate in eight years in order to retain additional capital for reinvestment and to reduce its payout ratio as earnings grow. Since 1986, PSE&G has made regular cash payments to PSEG in the form of dividends on outstanding shares of PSE&G's common stock. PSE&G paid common stock dividends of $450 million and $510 million to PSEG for the nine months ended September 30, 2000 and 1999, respectively. These amounts were used to fund PSEG's Common Stock dividends and to support a portion of PSEG's stock repurchase program. PSEG believes that it will have adequate earnings and cash flow in the future from PSE&G and Power to maintain Common Stock dividends at the current level. However, the amounts and dates of such dividends declared in the future will necessarily be dependent upon PSEG's future earnings, cash flows, financial requirements and other factors. Earnings and cash flows required to support the dividend will become more volatile as PSEG's business changes from one that is principally regulated to one that is principally competitive. Energy Holdings It is intended that Global and Resources will provide the earnings and cash flow for Energy Holdings' long-term growth. Resources' investments are designed to produce immediate cash flow and earnings that enable Global and Energy Technologies to focus on longer investment horizons. During the next five years, Energy Holdings will need significant capital to fund its planned growth. In addition to cash generated from operations, Energy Holdings' growth will be funded through external financings and equity infusions from PSEG. The delay of the securitization financing could impact the ability of PSEG to continue to make equity infusions into Energy Holdings which could affect Energy Holdings' growth strategy. Cash flow from operating activities increased $39 million from $104 million to $143 million for the nine months ended September 30, 2000 as compared to 1999, primarily due to a decrease in accounts receivable in Global as a result of a partner's reimbursement for their share of project costs. Regulatory Restrictions As a result of a 1992 BPU proceeding concerning the relationship of PSE&G to PSEG's non-utility businesses (Focused Audit), the BPU approved a plan which, among other things, provided that: (1) PSEG would not permit PSEG's non-utility assets to exceed 20% of PSEG's consolidated assets without prior notice to the BPU (as of September 30, 2000, these assets were in excess of the 20% limit and such notice had been given); (2) the PSE&G Board of Directors would provide an annual certification that the business and financing plans of Energy Holdings will not adversely affect PSE&G; (3) PSEG would (a) limit debt supported by the minimum net worth maintenance agreement between PSEG and PSEG Capital to $650 million and (b) make a good-faith effort to eliminate such support by May 2003; and (4) Energy Holdings would pay PSE&G an affiliation fee of up to $2 million a year to be applied by PSE&G to reduce utility rates. As a result of the accounting impacts resulting from the Final Order and the deregulation of the electric generation business in New Jersey, PSEG and PSE&G no longer believe that the 20% non-utility asset limitation remains appropriate and believe further that modifications to the Focused Audit limitations will be required. The Final Order addressed the Focused Audit, noting that PSEG's non-regulated assets would likely exceed 20% and that, due to significant changes in the industry and, in particular, PSEG's corporate structure as a result of the Final Order, modifications to or relief from the Focused Audit might be warranted. The BPU directed PSE&G to file a petition addressing the Focused Audit prior to the end of the first quarter of 2000. In March 2000, PSE&G submitted a letter to the BPU as its initial compliance with this filing requirement in which it notified the BPU of its intention to make a filing to modify the terms of the Focused Audit within 120 days after the Final Order becomes final and non-appealable. Energy Holdings believes that, if still required, it is capable of eliminating PSEG support of PSEG Capital debt within the time period set forth in the Focused Audit. Regulatory oversight by the BPU to ensure that there is no harm to utility customers from PSEG's non-utility investments is expected to continue. PSEG and PSE&G believe that these issues will be satisfactorily resolved, although no assurances can be given. In addition, if PSEG were no longer exempt under the Public Utility Holding Company Act (PUHCA), PSEG and its subsidiaries would be subject to additional regulation by the SEC with respect to financing and investing activities, including the amount and type of non-utility investments. PSEG believes, however, that this would not have a material adverse impact on it and its subsidiaries. Capital Requirements PSE&G and Power On October 31, 2000 Power announced that it had entered into an agreement with a third party to purchase 30 gas and steam turbines with a total combined generating capacity of 4,390 MW for $862.8 million. The turbines will be used at projects in the Northeast and Midwest. In September 2000, Power announced that it will assume responsibility of four Midwest generation projects being developed by Global and will be responsible for all future generation projects and development in the United States. The four projects will have a combined generating capacity of 2,830 MW. Power will reimburse Global for their project costs through 2000. On July 19, 2000, Power announced that it will construct a two-unit, 1,186 MW natural-gas fired combined-cycle generating facility at its Linden Generating Station at a cost of approximately $590 million with completion expected in May 2003. Three existing oil-fired steam units at Linden with a total capacity of 436 MW will be retired upon completion of the new facility. Also in 2000, Power announced that it will construct a 500 MW natural gas-fired, combined-cycle electric generating plant at its Bergen Generating Station at a cost of approximately $290 million with completion expected in June 2002. Power has also installed four new combustion turbines at Burlington Generating Station and two new combustion turbines at Linden Generating Station, adding 168 MW and 164 MW, respectively, of electric generating capacity, at a cost of approximately $151 million. The new combustion turbines were all operational as of July 2000. In May 2000, Power acquired Niagara Mohawk Power Corporation's (Niagara Mohawk) 400 MW oil and gas-fired electric generating station in Albany, New York (Albany Steam Station) for $49.9 million. Under the terms of the acquisition agreement, Niagara Mohawk could also receive up to an additional $9 million if Power chooses to pursue redevelopment of the Albany Steam Station. In September 1999, Power announced that it had signed an agreement to acquire all of Conectiv's interests in the Salem Nuclear Generating Station (Salem) and the Hope Creek Nuclear Generating Station (Hope Creek) and half of Conectiv's interest in the Peach Bottom Atomic Power Station (Peach Bottom), totaling 544 MW for an aggregate purchase price of $15.4 million plus the net book value of nuclear fuel at closing. For further information and discussion of the Wholesale Transaction Confirmation letter agreements between Power and Conectiv, see Note 4. Commitments and Contingent Liabilities. PSE&G and Power have substantial commitments as part of their ongoing construction programs. These programs are continuously reviewed and periodically revised as a result of changes in economic conditions, revised load forecasts, business strategies, site changes, cost escalations under construction contracts, requirements of regulatory authorities and laws, the timing of and amount of electric and gas transmission and/or distribution rate changes and the ability of PSE&G to raise necessary capital. For the nine month periods ended September 30, 2000 and 1999 PSE&G had net plant additions of $280 million, excluding Allowance for Funds Used During Construction (AFDC) and capitalized interest. Power had net plant additions for the nine months ended September 2000 of $288 million, excluding AFDC and capitalized interest. Energy Holdings Future investment activity will be subject to periodic review and revision and may vary significantly depending upon the opportunities presented. Factors affecting actual expenditures and investments include availability of capital and suitable investment opportunities, market volatility and local economic trends. Over the next several years, Energy Holdings, certain of its project affiliates and PSEG Capital will be required to refinance maturing debt, incur additional debt and provide equity to fund investment activity. Any inability to obtain required additional external capital or to extend or replace maturing debt and/or existing agreements at current levels and reasonable interest rates may affect Energy Holdings' financial condition, results of operations and net cash flows (see Liquidity and Capital Resources-Regulatory Restrictions above). External Financings PSEG At September 30, 2000, PSEG had a committed $150 million revolving credit facility which will expire in December 2002. At September 30, 2000, there were no borrowings under this revolving credit facility. On September 8, 1999, PSEG entered into an uncommitted line of credit with a bank with no stated limit. At September 30, 2000, PSEG had $145 million outstanding under this line of credit. PSEG has an $850 million commercial paper program to provide funds for general corporate purposes and, until securitization proceeds are received, provide funds for Power. On September 30, 2000, PSEG had commercial paper of $557 million outstanding. To provide liquidity for its commercial paper program, PSEG has a $570 million revolving credit facility expiring in March 2001 and a $280 million revolving credit facility expiring in March 2005. These agreements are with a group of banks and provide for borrowings with maturities of up to one year. As of September 30, 2000 there were no borrowings outstanding under these facilities. On October 10, 2000 PSEG filed a registration statement with the SEC to register $500 million of additional debt. In 1998, PSEG issued $100 million of Extendible Notes, Series A, due November 22, 2000. These Notes were automatically tendered and remarketed in February 2000. The interest rate through maturity is at the three-month London Interbank Offered Rate (LIBOR) plus 0.22%, reset quarterly. Also in 1998, PSEG issued $175 million of Extendible Notes, Series B, due November 22, 2000. These Notes were automatically tendered and remarketed in May 2000. The interest rate through maturity is at the three-month LIBOR plus 0.32%, reset quarterly. In 1999, PSEG issued $300 million of Extendible Notes, Series C, due June 15, 2001. These Notes were automatically tendered and remarketed in September 2000. The interest rate through maturity is at the three-month LIBOR plus 0.375%, reset quarterly. PSE&G As of September 30, 2000, the Mortgage would permit up to $2.9 billion aggregate principal amount of new Mortgage Bonds to be issued against previous additions and improvements, the level of which will be impacted by the actions ultimately taken in connection with securitization and the sale of generation-related assets to Power (see Liquidity and Capital Resources - PSEG and PSE&G). In addition to the refinancing of existing long-term debt authorized by the BPU in the Final Order, PSE&G will need to obtain BPU authorization to issue any incremental debt financing necessary for its capital program. PSE&G expects to apply for and receive necessary BPU authorization for external financings to meet its requirements over the next five years, as needed. While PSE&G expects such authority to be granted, no assurances can be given. Failure to receive such authority on a timely basis could have a material adverse effect on the financial condition, results of operations and net cash flows of PSE&G and PSEG. The BPU has authorized PSE&G to issue up to $1 billion of new long-term debt on the basis of previously matured, redeemed or purchased debt through December 31, 2001 On September 6, 2000, PSE&G issued $290 million of secured Medium Term Notes, Series A at 7.19%, due September 6, 2002. PSE&G maintains a $1.5 billion commercial paper program. To provide liquidity for this program, PSE&G has a $450 million revolving credit agreement expiring in June 2001, a $650 million credit facility expiring in June 2002 and a $400 million credit facility expiring in June 2001. These agreements provide for borrowings with maturities of up to one year. As of September 30, 2000, there were no borrowings outstanding under these facilities. The BPU has authorized PSE&G to issue and have outstanding at any one time through January 2, 2001, not more than $2.0 billion of short-term obligations, consisting of commercial paper and other unsecured borrowings from banks and other lenders. PSE&G has several uncommitted lines of credit with banks. On September 30, 2000, PSE&G had $1.6 billion of short-term debt outstanding, including $423 million borrowed against its uncommitted bank lines of credit. PSE&G has filed a petition with the BPU to extend its authority to issue short-term debt through January 2, 2003. PSE&G Fuel Corporation had a $125 million commercial paper program to finance a 42.49% share of Peach Bottom nuclear fuel. This commercial paper program was supported by a $125 million revolving credit facility with a group of banks. As a result of the transfer of generation assets from PSE&G to Power, the PSE&G Fuel Corporation commercial paper program has been discontinued. All commercial paper outstanding under this program was paid down on August 17, 2000. The credit facility supporting this program was terminated on September 11, 2000. Energy Holdings A registration statement was declared effective September 5, 2000 regarding an exchange offer for the $300 million of 9.125% Senior Notes due February 2004. The exchange offer was completed on October 18, 2000 with substantially all notes being exchanged. Energy Holdings completed an exchange offer in August 2000 exchanging $400 million of publicly traded 10.0% Senior Notes due October 2009 for notes which were issued in October 1999 in a private placement. Foreign Operations In accordance with their growth strategies, Global and Resources have made approximately $1.5 billion and $1.2 billion, respectively, of international investments. As of September 30, 2000, foreign investments represented 13% of PSEG's consolidated assets and the revenues from those foreign investments contributed 3% to consolidated revenues for the nine months ended September 30, 2000. For discussion of foreign currency risk, see Note 5. Financial Instruments and Risk Management. PSE&G and Energy Holdings The information required by this item is incorporated herein by reference to the following portions of PSEG's Management's Discussion and Analysis of Financial Condition and Results of Operations, insofar as they relate to PSE&G and Energy Holdings and their subsidiaries: Overview and Future Outlook; Results of Operations; Liquidity and Capital Resources; External Financings and Foreign Operations. Forward Looking Statements Except for the historical information contained herein, certain of the matters discussed in this report constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks and uncertainties which could cause actual results to differ materially from those anticipated. Such statements are based on management's beliefs as well as assumptions made by and information currently available to management. When used herein, the words "will", "anticipate", "intend", "estimate", "believe", "expect", "plan", "hypothetical", "potential", variations of such words and similar expressions are intended to identify forward-looking statements. PSEG, PSE&G and Energy Holdings undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The following review of factors should not be construed as exhaustive or as any admission regarding the adequacy of disclosures made by PSEG, PSE&G and Energy Holdings prior to the effective date of the Private Securities Litigation Reform Act of 1995. In addition to any assumptions and other factors referred to specifically in connection with such forward-looking statements, factors that could cause actual results to differ materially from those contemplated in any forward-looking statements include, among others, the following: deregulation and the unbundling of energy supplies and services and the establishment of a competitive energy marketplace for products and services; managing rapidly changing wholesale energy trading operations in conjunction with electricity and gas production, transmission and distribution systems; managing foreign investments and electric generation and distribution operations in locations outside of the traditional utility service territory; political and foreign currency risks; an increasingly competitive energy marketplace; sales retention and growth potential in a mature PSE&G service territory; ability to complete development or acquisition of current and future investments; partner and counterparty risk; exposure to market price fluctuations and volatility of fuel and power supply, power output, marketable securities, among others; ability to obtain adequate and timely rate relief, cost recovery, and other necessary regulatory approvals; ability to obtain securitization proceeds; Federal, state and foreign regulatory actions; regulatory oversight with respect to utility and non-utility affiliate relations and activities; operating restrictions, increased cost and construction delays attributable to environmental regulations; nuclear decommissioning and the availability of storage facilities for spent nuclear fuel; licensing and regulatory approval necessary for nuclear and other operating stations; the ability to economically and safely operate nuclear facilities in accordance with regulatory requirements; environmental concerns; and market risk and debt and equity market concerns associated with these issues. ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK The market risk inherent in PSEG's market risk sensitive instruments and positions is the potential loss arising from adverse changes in commodity prices, pollution credit prices, equity security prices, interest rates and foreign currency exchange rates as discussed below. PSEG's policy is to use derivatives to manage risk consistent with its business plans and prudent practices. PSEG has a Risk Management Committee comprised of executive officers which utilizes an independent risk oversight function to ensure compliance with corporate policies and prudent risk management practices. PSEG is exposed to credit losses in the event of non-performance or non-payment by counterparties. PSEG also has a credit management process which is used to assess, monitor and mitigate counterparty exposure for PSEG and its subsidiaries. In the event of non-performance or non-payment by a major counterparty, there may be a material adverse impact on PSEG's and its subsidiaries' financial condition, results of operations or net cash flows. For discussion of interest rates, commodity-related instruments, equity securities and foreign currency risks, see Note 5. Financial Instruments and Risk Management. Commodity-Related Instruments The availability and price of energy commodities are subject to fluctuations from factors such as weather, environmental policies, changes in supply and demand and state and Federal regulatory policies. To reduce price risk caused by market fluctuations, PSE&G and Power enter into derivative contracts, including forwards, futures, swaps and options with approved counterparties, to hedge anticipated demand. These contracts, in conjunction with owned electric generating capacity and physical gas supply contracts, are designed to cover estimated electric and gas customer commitments. PSEG uses a value-at-risk model to assess the market risk of its commodity business. This model includes fixed price sales commitments, owned generation, native load requirements, physical and financial contracts. Value-at-risk represents the potential gains or losses for instruments or portfolios due to changes in market factors, for a specified time period and confidence level. PSEG estimates value-at-risk across its commodity business using a model with historical volatilities and correlations. The measured value-at-risk using a variance/co-variance model with a 95% confidence level over a one-week time horizon at September 30, 2000 was approximately $12 million, compared to the December 31, 1999 level of $3 million. PSEG's calculated value-at-risk represents an estimate of the potential change in the value of its portfolio of physical and financial derivative instruments. These estimates, however, are not necessarily indicative of actual results, which may differ due to the fact that actual market rate fluctuations may differ from forecasted fluctuations and due to the fact that the portfolio of hedging instruments may change over the holding period. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Certain information reported under Item 3 of Part I of PSEG's and PSE&G's 1999 Annual Report on Form 10-K and Quarterly Reports on Form 10-Q for the quarters ended March 31, 2000 and June 30, 2000 and Energy Holdings' Registration Statement on Form S-4, filed June 29, 2000 and Quarterly Report on Form 10-Q for the quarter ended June 30, 2000, is updated below. (1) Form 10-K, pages 5, 27, 33, 64 and 69, March 31, 2000 Form 10-Q, pages 9 and 17 and June 30, 2000 Form 10-Q, pages 13 and 25. See Pages 14 and 25. Proceedings before the BPU in the matter of the Energy Master Plan Phase II Proceeding to investigate the future structure of the Electric Power Industry, Docket Nos. EX94120585Y, EO97070461, EO97070462 and EO97070463. (2) Form 10-K, pages 8, 27, 34 and 69, March 31, 2000 Form 10-Q, pages 9 and 17 and June 30, 2000 Form 10-Q, pages 13 and 25. See Pages 14 and 25. Appeals of the BPUs Final Order and Finance Order in the Energy Master Plan Proceedings, Docket Nos. C1263-99, C-1265-99 and C-1413-99. ITEM 5. OTHER INFORMATION Certain information reported under PSEG's and PSE&G's 1999 Annual Report on Form 10-K and Quarterly Reports on Form 10-Q for the quarters ended March 31, 2000 and June 30, 2000 and Energy Holdings' Registration Statement on Form S-4, filed June 29, 2000 and Quarterly Report on Form 10-Q for the quarter ended June 30, 2000, is updated below. References are to the related pages on the Form 10-K, Form 10-Q or Form S-4, as appropriate, as printed and distributed. PSE&G agreement with El Paso Merchant Energy New Matter. PSE&G and El Paso Merchant Energy, a business unit of El Paso Energy Corporation, have announced the restructuring of a long-term power sales agreement, a non-utility generation (NUG) contract between its Newark Bay generating project and PSE&G. The BPU approved the agreement. As required by state and federal regulation, PSE&G entered into a long-term agreement to purchase the output of the plant at prices that are now above market. Under the new agreement, El Paso Merchant Energy will supply a fixed amount of electricity to PSE&G at reduced rates. PSE&G expects that the new agreement will save its customers $75 million over the remaining 13-year term of the agreement, with no impact on earnings. Levelized Gas Adjustment Clause (LGAC) Form 10-K, page 9 and June 30, 2000 Form 10-Q page 41 . On July 31, 2000, PSE&G filed an amended motion with the BPU requesting interim authorization by September 1, 2000 to change the monthly pricing mechanism in PSE&G's LGAC to cover currently estimated price increases on a per month basis, exercisable in any month with no annual limit. The change will also allow PSE&G to decrease prices if the expected increases in gas costs do not occur. Currently, PSE&G has been given limited authority to change the monthly pricing mechanism during the months of November 2000 through April 2001. On October 3, 2000, PSE&G filed an emergent motion for provisional relief with the BPU. On November 1, 2000, the BPU issued a written order granting PSE&G a provisional rate increase of 16% with a 2% monthly potential flexing mechanism during the upcoming winter for the amounts that PSE&G is permitted to charge customers. Energy Efficiency and Renewable Energy (Formerly DSM) Form 10-K, page 9. On October 10, 2000, the BPU approved, on an interim basis, $7.5 million of statewide funding for new energy efficiency programs and $2.5 million of statewide funding for renewable energy programs to be administered by the BPU pending the BPU's final order in the Comprehensive Resource Analysis (CRA) proceeding. PSE&G is waiting for the BPU to issue a written order with details on how the interim CRA program is to be administered and how much of the cost of this funding will be collected from each of the New Jersey's seven utilities. PJM Interconnection LLC (PJM) Form 10-K, page 12. In October 2000, PJM and nine PJM transmission owners, including PSE&G, made a filing with the Federal Energy Regulatory Commission (FERC) stating that PJM is a Regional Transmission Organization (RTO) that meets or exceeds the requirements of the Final Rule promulgated by FERC in the RTO rulemaking proceeding (Order 2000). Included in this filing was a PJM rate proposal designed to provide reasonable, risk-adjusted returns on new transmission investments in the PJM region. Gas Operations and Supply Form 10-K, page 16. On August 11, 2000, PSE&G filed a gas merchant restructuring plan with the BPU which provides for, among other things, the transfer of PSE&G's gas supply, transportation, storage and peaking contracts to a subsidiary of Power and a requirements contract between PSE&G and Power's subsidiary enabling PSE&G to fulfill its basic gas supply service. PSE&G cannot predict the outcome of this matter. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (A) A listing of exhibits being filed with this document is as follows:
- ------------------------------------------------------------------------------------------------------------- Exhibit Document Number - ----------------- ----------- ----------------------------------------------------------------------- PSEG 10A(19) Employment Agreement with Frank Cassidy dated October 17, 2000 10A(20) Employment Agreement with Robert J. Dougherty dated October 17, 2000 10A(21) Employment Agreement with Alfred C. Koeppe dated October 17, 2000 10A(22) Employment Agreement with Robert C. Murray dated October 17, 2000 12 Computation of Ratios of Earnings to Fixed Charges (PSEG) 27(A) Financial Data Schedule (PSEG) - ----------------- ----------- ------------------------------------------------------------------------- PSE&G 12(A) Computation of Ratios of Earnings to Fixed Charges (PSE&G) 12(B) Computation of Ratios of Earnings to Fixed Charges plus Preferred Stock Dividend Requirements (PSE&G) 27(B) Financial Data Schedule (PSE&G) - ----------------- ----------- ------------------------------------------------------------------------- ENERGY HOLDINGS 12(C) Computation of Ratios of Earnings to Fixed Charges (Energy Holdings) 27(C) Financial Data Schedule (Energy Holdings) - -------------------------------------------------------------------------------------------------------------
(A) Reports on Form 8-K and Form 8-K/A Registrant Date of Report Items Reported ---------- -------------- -------------- PSEG and PSE&G August 21, 2000 Items 2 and 7 PSEG and PSE&G September 5, 2000 Items 2 and 7 PSEG, PSE&G and Energy Holdings October 18, 2000 Items 5 and 7 PSEG, PSE&G and Energy Holdings October 27, 2000 Item 9 PSEG and PSE&G November 1, 2000 Item 7 ================================================================================ PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED ================================================================================ SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused these reports to be signed on their respective behalf by the undersigned thereunto duly authorized. PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED PUBLIC SERVICE ELECTRIC and GAS COMPANY (Registrants) By: PATRICIA A. RADO _________________________________ Patricia A. Rado Vice President and Controller (Principal Accounting Officer) Date: November 13, 2000 ================================================================================ PSEG ENERGY HOLDINGS INC. ================================================================================ SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PSEG ENERGY HOLDINGS INC. (Registrant) By: DEREK DIRISIO _________________________________ Derek DiRisio Vice President and Controller (Principal Accounting Officer) Date: November 13, 2000 EX-10 2 0002.txt CASSIDY EMPLOYMENT AGREEMENT Exhibit 10a(19) EMPLOYMENT AGREEMENT AGREEMENT, by and between Public Service Enterprise Group Incorporated, a New Jersey Corporation ("Enterprise") and Frank Cassidy (the "Executive"), dated as of October 17, 2000. WHEREAS, the Executive is currently serving as President and Chief Operating Officer of PSEG Power LLC, a Delaware Limited Liability Company, and a wholly-owned subsidiary of Enterprise (Enterprise and its subsidiaries and affiliates being collectively hereinafter referred to as the "Company"). WHEREAS, in consideration of the substantial benefits to be provided by the Company pursuant to this Agreement, the Executive is willing to commit himself to be employed by the Company on the terms and conditions herein set forth; and WHEREAS, the parties desire to enter into this Agreement setting forth the terms and conditions for the employment relationship of the Executive with the Company during the Employment Period (as hereinafter defined): NOW, THEREFORE, IN CONSIDERATION of the mutual premises, covenants and agreements set forth below, it is hereby agreed as follows: 1. General. ------- (a) Employment. The Company agrees to employ the Executive, and the Executive agrees to be employed by the Company, in accordance with the terms and provisions of this Agreement during the Employment Period. (b) Term. The term of the Executive's employment under this Agreement (the "Employment Period") shall commence as of the date hereof (the "Effective Date") and shall continue until October 16, 2005. In the event a Change in Control occurs during the Employment Period, the term of the Executive's employment shall (unless terminated earlier pursuant to Section 4 hereof) automatically continue until the later of the last day of the Employment Period or the second anniversary of the Change in Control. In the event this Agreement is extended as provided in the preceding sentence, the Employment Period shall be the period from the Effective Date to the second anniversary of the Change in Control. 2. Position and Attention to Duties. -------------------------------- (a) Position. During the Employment Period, the Executive shall serve as President and Chief Operating Officer of PSEG Power LLC or in another senior executive position or positions for the Company, as determined by the Chief Executive Officer ("CEO") and Board of Directors ("Board") of Enterprise. (b) Attention. During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote full attention and time during normal business hours to the business and affairs of the Company and to use his reasonable best efforts to perform such responsibilities in a professional manner. It shall not be a violation of this Agreement for the Executive to (i) serve on corporate, civic or charitable boards or committees, (ii) deliver lectures, fulfill speaking engagements or teach at educational institutions and (iii) manage personal investments, so long as such activities do not interfere with the performance of the Executive's responsibilities as an officer and director of the Company in accordance with this Agreement. 3. Compensation. ------------ Except as modified by this Agreement, the Executive's compensation shall be provided in accordance with the Company's standard compensation and payroll practices as in effect from time to time. The aggregate of Base Salary, Annual Incentive Compensation and Long-Term Incentives in paragraphs (a), (b) and (c) below shall be determined based upon competitive practices for companies of comparable size and standing. (a) Base Salary. The annual rate of base salary payable to the Executive during the Employment Period (the "Annual Base Salary") shall be established by the Organization and Compensation Committee of the Board (the "Compensation Committee"). During the Employment Period, the Annual Base Salary shall be reviewed by the Compensation Committee for possible increase at least annually. Annual Base Salary shall not be reduced, and after any such increase and the term "Annual Base Salary" shall thereafter refer to the Annual Base Salary as so increased. (b) Annual Incentive Compensation. The Board has established and intends to continue an annual incentive compensation plan for the benefit of the officers and other key employees of the Company, including the Executive, based on competitive practices for companies of comparable size and standing. The performance objectives for the Executive in respect of such incentive will be determined by the Compensation Committee in accordance with past practices. (c) Long-Term Incentives. The Board has established and intends to continue a long-term incentive plan for the benefit of the officers and other key employees of the Company, including the Executive, based on competitive practices for companies of comparable size and standing. Such plan may, in the judgment of the Compensation Committee, provide for stock options, stock appreciation rights, restricted stock or stock units, performance stock or units and/or other type of long-term incentive awards. The type and amount of equity and any other long-term incentive grants will be determined by the Compensation Committee from time to time, and awards thereunder shall be payable to the Executive in accordance with the long-term incentive plan or plans in effect from time to time. (d) Option Award. ------------ (i) In consideration of the commitment he will assume during the Employment Period, the Executive shall be granted an award (the "Option Award") of non-qualified options under the Enterprise Long-Term Incentive Plan ("LTIP") to purchase 250,000 shares of the Common Stock without nominal or par value of Enterprise ("Stock"). Options granted under the Option Award are herein referred to as "Options". The grant price of the Options shall be the closing price of the Common Stock on the New York Stock Exchange on the Effective Date. The Executive's right to the Option Award shall vest and become exercisable in accordance with the following schedule, provided that the Executive has remained continuously employed by the Company during the Employment Period through the dates indicated below: Date Number of Shares ---- ---------------- October 17, 2001 50,000 October 17, 2002 50,000 October 17, 2003 50,000 October 17, 2004 50,000 October 17, 2005 50,000 If, during the Employment Period (1) there occurs a Change in Control, or (2) Enterprise enters into an agreement to merge or consolidate with any other corporation which, if consummated, would meet the requirements of Section 6(b) (iii) and the shareholders of Enterprise approve that agreement, the entire Option Award shall vest and become exercisable. If, during the Employment Period, the Company terminates the Executive's employment without Cause or the Executive terminates his employment for Good Reason, or the Executive's Employment terminates by reason of death or Disability, the Executive's right to the entire Option Award shall vest and become exercisable as of the Date of Termination. If, during the Employment Period, the Company terminates the Executive's employment for Cause or the Executive terminates his employment without Good Reason, including Retirement, the Executive shall forfeit all right to all shares of the Option Award that are not vested as of the Date of Termination. (ii) The Options shall expire ten (10) years after the Effective Date. (iii) Once Options become exercisable hereunder, the Executive may exercise such Options in any manner permitted by the LTIP. All vested options shall be exercised or shall be forfeited no later than the earlier of three years after termination of employment or 10 years after the Effective Date. (iv) Unless specifically provided by this Agreement, all terms and conditions of the Options granted hereunder shall be governed by the LTIP. (v) The Compensation Committee may make such provisions and take such steps as it may deem necessary or appropriate for the withholding of any taxes that the Company is required by law or regulation of any governmental authority, whether federal, state or local, domestic or foreign, to withhold in connection with the Option Award, including, but not limited to (1) withholding delivery of the certificate for shares of Stock until the Executive reimburses the Company for the amount it is required to withhold with respect to such taxes, (2) the canceling of any number of shares of Stock issuable to the Executive in an amount necessary to reimburse the Company for the amount it is required to so withhold, or (3) withholding the amount due from the Executive's other compensation. (e) Employee Benefit Programs. During the Employment Period, (i) the Executive shall be eligible to participate in all savings and retirement plans, practices, policies and programs to the same extent as other senior executives of the Company and (ii) the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company, other than severance plans, practices, policies and programs but including, without limitation, medical, prescription, dental, disability, salary continuance, employee life insurance, group life insurance, accidental death and travel accident insurance plans and programs, and, upon retirement, all applicable retirement benefit plans to the same extent and subject to the same terms, conditions, cost-sharing requirements and the like, as other senior executives of the Company, as such plans may be amended from time to time, and as supplemented hereby. Following a Change in Control, no benefit coverage available to the Executive and/or to his family under any such plan, practice, policy or program shall be materially reduced without the prior written consent of the Executive. (f) Retirement Benefit. During the Employment Period, the Executive shall participate in Enterprise's Pension Plan, and also in Enterprise's Limited Supplemental Benefits Plan, Mid-Career Hire Plan, Reinstatement Plan and such other supplemental executive retirement plans as may be adopted and amended by Enterprise from time to time ("SERPs"), such that the aggregate value of the retirement benefits that he and his beneficiaries will receive under all pension benefit plans of the Company (whether qualified or not) will not be less than the benefits he would have received had he continued to participate in such plans, as in effect immediately before the date hereof through the earlier of the end of the Employment Period or Retirement. It is agreed that the Option Award and any dividends or other distributions in respect of the Option Award shall not be included in any pension calculation. The Executive's right to retire shall be governed by the Enterprise Pension Plan ("Retirement"). (g) Expenses. The Executive is authorized to incur reasonable expenses in carrying out his duties and responsibilities under this Agreement. The Company shall promptly reimburse him for all such expenses in accordance with the policies of the Company in effect from time to time for reimbursement of expenses for senior executives, and subject to documentation provided by the Executive in accordance with such Company policies. (h) Fringe Benefits. During the Employment Period, the Executive shall participate in all fringe benefits and perquisites available to senior executives of the Company, including provision of an automobile, on terms and conditions that are commensurate with his positions and responsibilities at the Company. (i) Vacation. During the Employment Period, the Executive shall be entitled to paid vacation in accordance with Company policy for its most senior executives as in effect from time to time. (j) Deferred Compensation. The Executive will retain all of his rights in any compensation deferred prior to the date hereof in accordance with the Deferred Compensation Plan, including earnings thereon, and following the date hereof the obligations of the Company to pay such deferred compensation at the times and in the manner specified in the Deferred Compensation Plan will continue. 4. Termination of Employment. ------------------------- (a) Death or Disability. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. If the Company determines in good faith that the Disability of the Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Executive written notice in accordance with Section 4(b) of this Agreement of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. For purposes of this Agreement, "Disability" means that (i) the Executive has been unable, for the period, if any, specified in the Company's disability plan for senior executives, but not less than a period of 180 consecutive days, to perform the Executive's duties under this Agreement and (ii) a physician selected by the Company or its insurers, and acceptable to the Executive or the Executive's legal representative, has determined that the Executive is disabled within the meaning of the applicable disability plan for senior executives. (b) By the Company. -------------- (i) The Company may terminate the Executive's employment during the Employment Period for Cause or without Cause. For purposes of this Agreement, "Cause" shall mean (A) willful and continued failure by the Executive to substantially perform his duties under this Agreement, (B) the willful engaging by the Executive in gross misconduct which is materially and demonstrably injurious to the Company, or (C) the conviction of the Executive of a felony. No act or failure to act on the part of the Executive shall be considered "willful" unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive's action or omission was in the best interests of the Company. Any act or failure to act that is based upon authority given pursuant to a resolution duly adopted by the Board of Directors of the Company, or the advice of counsel for the Company, shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. (ii) A termination of the Executive's employment for Cause shall be effected in accordance with the following procedures. The Company shall give the Executive written notice ("Notice of Termination for Cause") of its intention to terminate the Executive's employment for Cause, setting forth in reasonable detail the specific conduct of the Executive that it considers to constitute Cause and the specific provision(s) of this Agreement on which it relies. Such notice shall be given no later than 60 days after the act or failure (or the last in a series of acts or failures) that the Company alleges to constitute Cause. The Executive shall have 30 days after receiving the Notice of Termination for Cause in which to cure such act or failure, to the extent such cure is possible. In the case of a termination under Section 4(b)(i)(A) or Section 4(b)(i)(B), if the Executive fails to cure such act or failure to the reasonable satisfaction of the Company, the Company shall give the Executive a second written notice stating that in the good faith opinion of the Board, the Executive is guilty of the conduct described in the Notice of Termination for Cause and that such conduct constitutes Cause under this Agreement. (c) Good Reason. ----------- (i) The Executive may terminate his employment during the Employment Period for Good Reason or without Good Reason. For purpose of this Agreement, "Good Reason" shall mean: (A) prior to the occurrence of a Change in Control, any reduction in the Executive's Annual Base Salary; (B) following a Change in Control: (1) any reduction in the Executive's Annual Base Salary, target annual bonus, target long-term incentive or Retirement benefit; (2) any adverse change in the Executive's title, authority, duties, responsibilities and reporting lines or the assignment to the Executive of any duties or responsibilities inconsistent in any respect with those customarily associated with the position of the Executive immediately prior to the Change in Control; (3) any purported termination of the Executive's employment by the Company for a reason or in a manner not expressly permitted by this Agreement; (4) any failure by Enterprise to comply with Section 10(c) of this Agreement; or (5) any other material breach of this Agreement by the Company that either is not taken in good faith or, even if taken in good faith, is not remedied by the Company promptly after receipt of notice thereof from the Executive. Following a Change in Control, the Executive's determination that an act or failure to act constitutes Good Reason shall be conclusively presumed to be valid unless such determination is decided to be unreasonable by an arbitrator pursuant to Section 9. (ii) A termination of employment by the Executive for Good Reason shall be effectuated by giving the Company written notice ("Notice of Termination for Good Reason") of the termination, setting forth in reasonable detail the specific acts or omissions of the Company that constitute Good Reason and the specific provision(s) of this Agreement on which the Executive relies. Unless the CEO determines otherwise, a Notice of Termination for Good Reason by the Executive must be made within 60 days after the Executive first has actual knowledge of the act or omission (or the last in a series of acts or omissions) that the Executive alleges to constitute Good Reason, and the Company shall have 30 days from the receipt of such Notice of Termination for Good Reason to cure the conduct cited therein. A termination of employment by the Executive for Good Reason shall be effective on the final day of such 30-day cure period unless prior to such time the Company has cured the specific conduct asserted by the Executive to constitute Good Reason to the reasonable satisfaction of the Executive. (iii)A termination of the Executive's employment by the Executive without Good Reason, including Retirement, shall be effected by giving the Company at least 30 days' written notice specifying the effective date of termination. (d) Date of Termination. The "Date of Termination" means the date of the Executive's death, the Disability Effective Date, or the date on which the termination of the Executive's employment by the Company for Cause or without Cause or by the Executive for Good Reason or without Good Reason, including Retirement, is effective, as the case may be. 5. Obligations of the Company upon Termination. ------------------------------------------- (a) Good Reason; Other Than for Cause. If, during the Employment Period, the Company shall terminate the Executive's employment other than for Cause, death or Disability, or the Executive shall terminate his employment for Good Reason: (i) the Company shall pay to the Executive in a lump sum in cash, within 15 days after the Date of Termination, the aggregate of the amounts set forth in clauses A and B below: A. The sum of: (1) the Executive's Annual Base Salary through the Date of Termination; (2) the product of (x) the "target" annual bonus under Section 3(b) (the "Target Bonus") and (y) a fraction, the numerator of which is the number of days in the current calendar year through the Date of Termination, and the denominator of which is 365; and (3) any accrued vacation pay; in each case to the extent not theretofore paid (the sum of the amounts described in clauses (1), (2) and (3) shall be hereinafter referred to as the "Accrued Obligations"); and B. the amount equal to the product of (1) two and (2) the sum of (x) the Executive's Annual Base Salary and (y) the Target Bonus. (ii) the Option Award shall vest in accordance with Section 3(d)(i); (iii) any stock awards, stock options, other than the Option Award, stock appreciation rights or other equity-based awards that were outstanding immediately prior to the Date of Termination ("Prior Equity Awards") shall vest and/or become exercisable in accordance with the underlying plan for such Prior Equity Award; (iv) for two years after the Executive's Date of Termination or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue benefits to the Executive and/or the Executive's family at least equal to those which would have been provided to them in accordance with the welfare plans, programs, practices and policies described in Section 3(e) of this Agreement if the Executive's employment had not been terminated or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies and their families, provided however, that if the Executive becomes reemployed with another employer and is eligible to receive medical or dental benefits under another employer provided plan, the medical and dental benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility; (v) any compensation previously deferred (other than pursuant to a tax-qualified plan) by or on behalf of the Executive (together with any accrued interest or earnings thereon), whether or not then vested, shall become vested on the Date of Termination and shall be paid in accordance with the terms of the plan, policy or practice under which it was deferred; (vi) the Company shall, at its sole expense as incurred, provide the Executive with outplacement services suitable to the Executive's position for a period not to exceed two years with a nationally recognized outplacement firm; and, (vii) to the extent not theretofore paid or provided, the Company shall pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is entitled to receive under any plan, program, policy, practice, contract or agreement of the Company and its affiliated companies (other than medical or dental benefits if the Executive is eligible for such benefits to be provided by a subsequent employer), including earned but unpaid stock and similar compensation but excluding any severance plan or policy (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"). (b) Cause; Other than for Good Reason. If the Executive's employment shall be terminated for Cause during the Employment Period, or if the Executive voluntarily terminates employment during the Employment Period, excluding a resignation for Good Reason, the Company shall have no further payment obligations to the Executive other than for amounts described in Sections 5(a)(i)(A)(1) and 5(a)(i)(A)(3) and the timely payment or provision of Other Benefits. In such case, all such amounts shall be paid to the Executive in a lump sum within 30 days of the Date of Termination. Any unvested portion of the Option Award shall be forfeited in accordance with Section 3(d)(i). (c) Death. If the Executive's employment terminates by reason of the Executive's death during the Employment Period, all Accrued Obligations as of the time of death shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination and the Executive's estate or beneficiary shall be entitled to any Other Benefits in accordance with their terms. In addition, the Option Award shall vest in accordance with Section 3(d)(i). Any Prior Equity Awards shall vest and/or become exercisable, as the case may be, as of the Date of Termination and the Executive's estate or beneficiary, as the case may be, shall have the right to exercise any such stock option, stock appreciation right or other exercisable equity-based award until the earlier of (A) one year from the Date of Termination (or such longer period as may be provided under the terms of any such stock option, stock appreciation right or other equity-based award) and (B) the normal expiration date of such stock option, stock appreciation right or other equity-based award. (d) Disability. If the Executive's employment is terminated by reason of Disability during the Employment Period, all Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination, and the Executive shall be entitled to any Other Benefits in accordance with their terms. In addition, the Option Award shall vest in accordance with Section 3(d)(i). Any Prior Equity Awards shall vest immediately and/or become exercisable, as the case may be, and the Executive shall have the right to exercise any such stock option, stock appreciation right or other exercisable equity-based award until the earlier of (A) one year from the Date of Termination (or such longer period as may be provided under the terms of any such stock option, stock appreciation right or other equity-based award) and (B) the normal expiration date of such stock option, stock appreciation right or other equity-based award. (e) Retirement. If the Executive's employment terminates as a result of Retirement, the Executive shall be paid the Accrued Obligations in a lump sum in cash within 30 days of the Date of Termination and the Executive shall be entitled to any Other Benefits in accordance with their terms. Any remaining portion of the Option Award shall vest or be forfeited in accordance with Section 3(d)(i). 6. Change in Control. ----------------- (a) Benefits Upon a Change in Control. The Executive's rights upon a termination of employment that occurs following a Change in Control shall be as specified in Section 5 generally for termination of employment, except (i) the amount payable under 5(a)(i)(B) shall be three times the sum of (x) the Executive's Annual Base Salary and (y) the Target Bonus; (ii) the benefits under Section 5(a)(iv) shall be provided for three years after the Date of Termination and the Executive's eligibility (but not the time of commencement of such benefits) for retiree benefits pursuant to such plans, practices, programs and policies shall be determined as if the Executive had remained employed until three years after the Date of Termination and to have retired on the last day of such period; (iii) the Option Award shall have vested in accordance with Section 3(d)(i); and (iv) the Executive shall be paid within 15 days after the Date of Termination, an amount equal to the excess of (A) the actuarial equivalent of the benefit under the Company's applicable qualified defined benefit retirement plan in which the Executive is participating immediately prior to his Date of Termination (the "Retirement Plan") (utilizing the rate used to determine lump sums and, to the extent applicable, other actuarial assumptions no less favorable to the Executive than those in effect under the Retirement Plan immediately prior to the Date of this Agreement), any SERPs in which the Executive participates and, to the extent applicable, any other defined benefit retirement arrangement between the Executive and the Company ("Other Pension Benefits") which the Executive would receive if the Executive's employment continued for three additional years beyond the Date of Termination, assuming for this purpose that all accrued benefits are fully vested, and, assuming that the Executive's compensation for such deemed additional period was the Executive's Annual Base Salary as in effect immediately prior to the Date of Termination and assuming a bonus in each year during such deemed additional period equal to the Target Bonus, over (B) the actuarial equivalent of the Executive's actual benefit (paid or payable), if any, under the Retirement Plan, the SERPs and Other Pension Benefits as of the Date of Termination (utilizing the rate used to determine lump sums and, to the extent applicable, other actuarial assumptions no less favorable to the Executive than those in effect under the Retirement Plan immediately prior to the date of this Agreement). (b) Definition. For purposes of this Agreement, a "Change in Control" shall mean the occurrence of any of the ---------- following events after the date of this Agreement: (i) any "person" (within the meaning of Section 13(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") is or becomes the beneficial owner within the meaning of Rule 13d-3 under the Exchange Act (a "Beneficial Owner"), directly or indirectly, of securities of Enterprise (not including in the securities beneficially owned by such person any securities acquired directly from Enterprise or its affiliates) representing 25% or more of the combined voting power of Enterprise's then outstanding securities, excluding any person who becomes such a Beneficial Owner in connection with a transaction described in clause (A) of paragraph (iii) below; or (ii) the following individuals cease for any reason to constitute a majority of the number of directors of Enterprise then serving: individuals who, on the date of this Agreement, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of Enterprise) whose appointment or election by the Board or nomination for election by Enterprise's stockholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved or recommended; or (iii) there is consummated a merger or consolidation of Enterprise or any direct or indirect wholly-owned subsidiary of Enterprise with any other corporation, other than (A) a merger or consolidation which would result in the voting securities of Enterprise outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of Enterprise or any subsidiary of Enterprise, at least 75% of the combined voting power of the securities of Enterprise or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (B) a merger or consolidation effected to implement a recapitalization of Enterprise (or similar transaction) in which no person is or becomes the Beneficial Owner, directly or indirectly, of securities of Enterprise representing 25% or more of the combined voting power of Enterprise's then outstanding securities; or (iv) the shareholders of Enterprise approve a plan of complete liquidation or dissolution of Enterprise or there is consummated an agreement for the sale or disposition by Enterprise of all or substantially all of Enterprise's assets, other than a sale or disposition by Enterprise of all or substantially all of Enterprise's assets to an entity, at least 75% of the combined voting power of the voting securities of which are owned by stockholders of Enterprise in substantially the same proportions as their ownership of Enterprise immediately prior to such sale. Notwithstanding the foregoing, a "Change in Control" shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions immediately following which the record holders of the common stock of Enterprise immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in an entity which owns all or substantially all of the assets of Enterprise immediately following such transaction or series of transactions. 7. Confidential Information; No Competition. ---------------------------------------- (a) The Executive shall hold in a fiduciary capacity for the benefit of the Company all confidential information, knowledge or data (defined below) relating to the Company or any of its affiliates or subsidiaries, and their respective businesses, which shall have been obtained by the Executive during the Executive's employment by the Company or any of its affiliated companies and which shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). Upon Termination of the Executive's employment, he shall return to the Company all Company information. After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it, except (x) otherwise publicly available information, or (y) as may be necessary to enforce his rights under this Agreement or necessary to defend himself against a claim asserted directly or indirectly by the Company or its affiliates. Unless and until a determination has been made in accordance with Section 7(d) or Section 9 hereof that the Executive has violated this Section 7, an asserted violation of the provisions of this Section 7 shall not constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. (b) As used herein, the term "confidential information, knowledge or data" means all trade secrets, proprietary and confidential business information belonging to, used by, or in the possession of the Company or any of its affiliates and subsidiaries, including but not limited to information, knowledge or data related to business strategies, plans and financial information, mergers, acquisitions or consolidations, purchase or sale of property, leasing, pricing, sales programs or tactics, actual or past sellers, purchasers, lessees, lessors or customers, those with whom the Company or its affiliates and subsidiaries has begun negotiations for new business, costs, employee compensation, marketing and development plans, inventions and technology, whether such confidential information, knowledge or data is oral, written or electronically recorded or stored, except information in the public domain, information known by the Executive prior to employment with the Company, and information received by the Executive from sources other than the Company or its affiliates and subsidiaries, without obligation of confidentiality. (c) The confidential knowledge, information and data, as defined in the previous paragraph, gained in the performance of the Executive's duties hereunder may be valuable to those who are now, or might become, competitors of the Company or its affiliates and subsidiaries. Accordingly, the Executive agrees that, without the written consent of Enterprise, he will not, for the period of one year from Date of Termination or completion of the Employment Period, whichever occurs first, directly own, manage, operate, join, control, become employed by, consult to or participate in the ownership, management, or control of any business which is in direct competition with the Company and/or its affiliates and subsidiaries. Further, the Executive agrees that, for two years following the Date of Termination, he will not, directly or indirectly, solicit or hire, or encourage the solicitation or hiring of any person who was a managerial or higher level employee of the Company at any time during the term of the Executive's employment by the Company by any employer other than the Company for any position as an employee, independent contractor, consultant or otherwise. The foregoing agreement of the Executive shall not apply to any person after 6 months have elapsed subsequent to the date on which such person's employment by the Company has terminated. In the case of any such prohibited activity, the Executive shall not be entitled to post-employment payments (including any unexercised options under the Option Award). (d) In the event of a breach by the Executive of any of the agreements set forth in Paragraphs (a), (b) or (c) above, it is agreed that the Company shall suffer irreparable harm for which money damages are not an adequate remedy, and that, in the event of such breach, the Company shall be entitled to obtain an order of a court of competent jurisdiction for equitable relief from such breach, including, but not limited to, temporary restraining orders and preliminary and/or permanent injunctions against the breach of such agreements by the Executive. In the event that the Company should initiate any legal action for the breach or enforcement of any of the provisions contained in this Section 7 and the Company does not prevail in such action, the Company shall promptly reimburse the Executive the full amount of any court costs, filing fees, attorney's fees which the Executive incurs in defending such action, and any loss of income during the period of such litigation. 8. Full Settlement. --------------- (a) No Duty to Mitigate; No Reduction. Except as provided in Section 7(c), and except to the extent that a Court under Section 7(d) or an arbitrator appointed under Section 9 shall determine to permit an offset in respect of a violation by the Executive of his obligations under Section 7, the Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and, except as specifically provided in Section 5(a)(iv) and Section 5(a)(vii) with respect to certain medical and dental benefits, such amounts shall not be reduced whether or not the Executive obtains other employment. (b) Non-exclusivity of Rights. Except as provided in Section 7(c), nothing in the Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies for which the Executive may qualify. Vested benefits and other amounts that the Executive is otherwise entitled to receive under the incentive compensation plans referred to in Section 3(c), the SERPs, or any other plan, policy, practice of program of the Company or any of its affiliated companies on or after the Date of Termination shall be payable in accordance with the terms of each such plan, policy, practice or program, as the case may be, except as explicitly modified by this Agreement. 9. Disputes Except with respect to equitable relief provided for in Section 7(d), any dispute about the validity, interpretation, effect or alleged violation of this Agreement shall be resolved by confidential binding arbitration before one arbitrator to be held in Newark, New Jersey in accordance with the Employment Dispute Resolution Rules of the American Arbitration Association and the United States Arbitration Act. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereover. All costs and expenses incurred by the Company or the Executive or the Executive's beneficiaries in connection with any such controversy or dispute, including without limitation reasonable attorney's fees, shall be borne by the Company as incurred, except that the Executive shall be responsible for any such costs and expenses incurred in connection with any claim determined by the arbitrator to have been without reasonable basis or to have been brought in bad faith. The Executive shall be entitled to interest at the applicable Federal rate provided for in Section 7872 (f) (2)(A) of the Internal Revenue Code of 1986, as amended (the "Code"), on any delayed payment which the arbitrator determine he was entitled to under this Agreement. 10. Successors. ---------- (a) No Assignment by Executive. This Agreement is personal to the Executive and without the prior written consent of Enterprise shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) Successors to Enterprise. This Agreement shall inure to the benefit of and be binding upon Enterprise and its successors and assigns. (c) Performance by a Successor to Enterprise. Enterprise will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of Enterprise to assume expressly and agree to perform this Agreement in the same manner and to the same extent that Enterprise would be required to perform it if no such succession had taken place. As used in this Agreement, "Enterprise" shall mean Enterprise as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 11. Certain Additional Payments by the Company. ------------------------------------------ (a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 11) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income and employment taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. (b) Subject to the provisions of Section 11(c), all determinations required to be made under this Section 11, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by the Company's independent auditors or such other certified public accounting firm as may be jointly designated by the Executive and the Company (the "Accounting Firm"), which shall provide detailed supporting calculations both to the Company and the Executive. All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 11, shall be paid by the Company to the Executive within 15 days of the receipt of the Accounting Firm's determination. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 11(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive. (c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which he gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) give the Company any information reasonably requested by the Company relating to such claim, (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iii) cooperate with the Company in good faith in order effectively to contest such claim, and (iv) permit the Company to participate in any proceedings relating to such claim; provided however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 11(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 11(c), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of Section 11(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 11(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 12. Miscellaneous. ------------- (a) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey applicable to agreements executed and performed entirely therein. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) Notices. All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: 80 Park Plaza P. O. Box 1171 Newark, NJ 07102 If to the Company: 80 Park Plaza P. O. Box 1171 Newark, NJ 07102 Attention: Vice President and General Counsel or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (c) Invalidity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. If any provision of this Agreement shall be held invalid or unenforceable in part, the remaining portion of such provision, together with all other provisions of this Agreement, shall remain valid and enforceable and continue in full force and effect to the fullest extent consistent with law. Further, to the extent that a provision is to be held invalid or unenforceable, it shall be limited or construed in a manner that is valid and enforceable and gives maximum permissible effect to the provision and the intent of this Agreement. (d) Tax Withholding. Notwithstanding any other provision of this Agreement, the Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) Failure to Assert Rights. The Executive's or the Company's failure to insist upon strict compliance with any provisions of, or to assert any right under, this Agreement shall not be deemed to be a waiver of such provision or right or of any other provision of or right under this Agreement. (f) No Alienation. The rights and benefits of the Executive under this Agreement may not be anticipated, assigned, alienated or subject to attachment, garnishment, levy, execution or other legal or equitable process except as required by law. Any attempt by the Executive to anticipate, alienate, assign, sell, transfer, pledge, encumber or charge the same shall be void. Payments hereunder shall not be considered assets of the Executive in the event of insolvency or bankruptcy. (g) Entire Agreement. This Employment Agreement represents the complete agreement between the Executive and the Company relating to employment and termination and may not be altered or changed except by written agreement executed by the parties hereto or their respective successors or legal representatives. IN WITNESS WHEREOF, the Executive and, pursuant to due authorization from its Board of Directors, the Company have caused this Agreement to be executed as of the day and year first above written. By:FRANK CASSIDY ________________________________ Frank Cassidy President and Chief Operating Officer PSEG Power LLC PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED By:E. JAMES FERLAND _______________________________ E. James Ferland Chairman of the Board, President and Chief Executive Officer EX-10 3 0003.txt DOUGHERTY EMPLOYMENT AGREEMENT Exhibit 10a(20) EMPLOYMENT AGREEMENT AGREEMENT, by and between Public Service Enterprise Group Incorporated, a New Jersey Corporation ("Enterprise") and Robert J. Dougherty, Jr. (the "Executive"), dated as of October 17, 2000. WHEREAS, the Executive is currently serving as President and Chief Operating Officer of PSEG Energy Holdings Inc., a New Jersey Corporation, and a wholly-owned subsidiary of Enterprise (Enterprise and its subsidiaries and affiliates being collectively hereinafter referred to as the "Company"). WHEREAS, in consideration of the substantial benefits to be provided by the Company pursuant to this Agreement, the Executive is willing to commit himself to be employed by the Company on the terms and conditions herein set forth; and WHEREAS, the parties desire to enter into this Agreement setting forth the terms and conditions for the employment relationship of the Executive with the Company during the Employment Period (as hereinafter defined): NOW, THEREFORE, IN CONSIDERATION of the mutual premises, covenants and agreements set forth below, it is hereby agreed as follows: 1. General. ------- (a) Employment. The Company agrees to employ the Executive, and the Executive agrees to be employed by the Company, in accordance with the terms and provisions of this Agreement during the Employment Period. (b) Term. The term of the Executive's employment under this Agreement (the "Employment Period") shall commence as of the date hereof (the "Effective Date") and shall continue until October 16, 2005. In the event a Change in Control occurs during the Employment Period, the term of the Executive's employment shall (unless terminated earlier pursuant to Section 4 hereof) automatically continue until the later of the last day of the Employment Period or the second anniversary of the Change in Control. In the event this Agreement is extended as provided in the preceding sentence, the Employment Period shall be the period from the Effective Date to the second anniversary of the Change in Control. 2. Position and Attention to Duties. -------------------------------- (a) Position. During the Employment Period, the Executive shall serve as President and Chief Operating Officer of PSEG Energy Holdings Inc. or in another senior executive position or positions for the Company, as determined by the Executive Officer ("CEO") and Board of Directors ("Board") of Enterprise. (b) Attention. During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote full attention and time during normal business hours to the business and affairs of the Company and to use his reasonable best efforts to perform such responsibilities in a professional manner. It shall not be a violation of this Agreement for the Executive to (i) serve on corporate, civic or charitable boards or committees, (ii) deliver lectures, fulfill speaking engagements or teach at educational institutions and (iii) manage personal investments, so long as such activities do not interfere with the performance of the Executive's responsibilities as an officer and director of the Company in accordance with this Agreement. 3. Compensation. ------------ Except as modified by this Agreement, the Executive's compensation shall be provided in accordance with the Company's standard compensation and payroll practices as in effect from time to time. The aggregate of Base Salary, Annual Incentive Compensation and Long-Term Incentives in paragraphs (a), (b) and (c) below shall be determined based upon competitive practices for companies of comparable size and standing. (a) Base Salary. The annual rate of base salary payable to the Executive during the Employment Period (the "Annual Base Salary") shall be established by the Organization and Compensation Committee of the Board (the "Compensation Committee"). During the Employment Period, the Annual Base Salary shall be reviewed by the Compensation Committee for possible increase at least annually. Annual Base Salary shall not be reduced, and after any such increase and the term "Annual Base Salary" shall thereafter refer to the Annual Base Salary as so increased. (b) Annual Incentive Compensation. The Board has established and intends to continue an annual incentive compensation plan for the benefit of the officers and other key employees of the Company, including the Executive, based on competitive practices for companies of comparable size and standing. The performance objectives for the Executive in respect of such incentive will be determined by the Compensation Committee in accordance with past practices. (c) Long-Term Incentives. The Board has established and intends to continue a long-term incentive plan for the benefit of the officers and other key employees of the Company, including the Executive, based on competitive practices for companies of comparable size and standing. Such plan may, in the judgment of the Compensation Committee, provide for stock options, stock appreciation rights, restricted stock or stock units, performance stock or units and/or other type of long-term incentive awards. The type and amount of equity and any other long-term incentive grants will be determined by the Compensation Committee from time to time, and awards thereunder shall be payable to the Executive in accordance with the long-term incentive plan or plans in effect from time to time. (d) Option Award. ------------ (i) In consideration of the commitment he will assume during the Employment Period, the Executive shall be granted an award (the "Option Award") of non-qualified options under the Enterprise Long-Term Incentive Plan ("LTIP") to purchase 250,000 shares of the Common Stock without nominal or par value of Enterprise ("Stock"). Options granted under the Option Award are herein referred to as "Options". The grant price of the Options shall be the closing price of the Common Stock on the New York Stock Exchange on the Effective Date. The Executive's right to the Option Award shall vest and become exercisable in accordance with the following schedule, provided that the Executive has remained continuously employed by the Company during the Employment Period through the dates indicated below: Date Number of Shares ---- ---------------- October 17, 2001 50,000 October 17, 2002 50,000 October 17, 2003 50,000 October 17, 2004 50,000 October 17, 2005 50,000 If, during the Employment Period (1) there occurs a Change in Control, or (2) Enterprise enters into an agreement to merge or consolidate with any other corporation which, if consummated, would meet the requirements of Section 6(b) (iii) and the shareholders of Enterprise approve that agreement, the entire Option Award shall vest and become exercisable. If, during the Employment Period, the Company terminates the Executive's employment without Cause or the Executive terminates his employment for Good Reason, or the Executive's Employment terminates by reason of death or Disability, the Executive's right to the entire Option Award shall vest and become exercisable as of the Date of Termination. If, during the Employment Period, the Company terminates the Executive's employment for Cause or the Executive terminates his employment without Good Reason, including Retirement, the Executive shall forfeit all right to all shares of the Option Award that are not vested as of the Date of Termination. (ii) The Options shall expire ten (10) years after the Effective Date. (iii) Once Options become exercisable hereunder, the Executive may exercise such Options in any manner permitted by the LTIP. All vested options shall be exercised or shall be forfeited no later than the earlier of three years after termination of employment or 10 years after the Effective Date. (iv) Unless specifically provided by this Agreement, all terms and conditions of the Options granted hereunder shall be governed by the LTIP. (v) The Compensation Committee may make such provisions and take such steps as it may deem necessary or appropriate for the withholding of any taxes that the Company is required by law or regulation of any governmental authority, whether federal, state or local, domestic or foreign, to withhold in connection with the Option Award, including, but not limited to (1) withholding delivery of the certificate for shares of Stock until the Executive reimburses the Company for the amount it is required to withhold with respect to such taxes, (2) the canceling of any number of shares of Stock issuable to the Executive in an amount necessary to reimburse the Company for the amount it is required to so withhold, or (3) withholding the amount due from the Executive's other compensation. (e) Employee Benefit Programs. During the Employment Period, (i) the Executive shall be eligible to participate in all savings and retirement plans, practices, policies and programs to the same extent as other senior executives of the Company and (ii) the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company, other than severance plans, practices, policies and programs but including, without limitation, medical, prescription, dental, disability, salary continuance, employee life insurance, group life insurance, accidental death and travel accident insurance plans and programs, and, upon retirement, all applicable retirement benefit plans to the same extent and subject to the same terms, conditions, cost-sharing requirements and the like, as other senior executives of the Company, as such plans may be amended from time to time, and as supplemented hereby. Following a Change in Control, no benefit coverage available to the Executive and/or to his family under any such plan, practice, policy or program shall be materially reduced without the prior written consent of the Executive. (f) Retirement Benefit. During the Employment Period, the Executive shall participate in Enterprise's Pension Plan, and also in Enterprise's Limited Supplemental Benefits Plan, Mid-Career Hire Plan, Reinstatement Plan and such other supplemental executive retirement plans as may be adopted and amended by Enterprise from time to time ("SERPs"), such that the aggregate value of the retirement benefits that he and his beneficiaries will receive under all pension benefit plans of the Company (whether qualified or not) will not be less than the benefits he would have received had he continued to participate in such plans, as in effect immediately before the date hereof through the earlier of the end of the Employment Period or Retirement. It is agreed that the Option Award and any dividends or other distributions in respect of the Option Award shall not be included in any pension calculation. The Executive's right to retire shall be governed by the Enterprise Pension Plan ("Retirement"). (g) Expenses. The Executive is authorized to incur reasonable expenses in carrying out his duties and responsibilities under this Agreement. The Company shall promptly reimburse him for all such expenses in accordance with the policies of the Company in effect from time to time for reimbursement of expenses for senior executives, and subject to documentation provided by the Executive in accordance with such Company policies. (h) Fringe Benefits. During the Employment Period, the Executive shall participate in all fringe benefits and perquisites available to senior executives of the Company, including provision of an automobile, on terms and conditions that are commensurate with his positions and responsibilities at the Company. (i) Vacation. During the Employment Period, the Executive shall be entitled to paid vacation in accordance with Company policy for its most senior executives as in effect from time to time. (j) Deferred Compensation. The Executive will retain all of his rights in any compensation deferred prior to the date hereof in accordance with the Deferred Compensation Plan, including earnings thereon, and following the date hereof the obligations of the Company to pay such deferred compensation at the times and in the manner specified in the Deferred Compensation Plan will continue. 4. Termination of Employment. ------------------------- (a) Death or Disability. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. If the Company determines in good faith that the Disability of the Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Executive written notice in accordance with Section 4(b) of this Agreement of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. For purposes of this Agreement, "Disability" means that (i) the Executive has been unable, for the period, if any, specified in the Company's disability plan for senior executives, but not less than a period of 180 consecutive days, to perform the Executive's duties under this Agreement and (ii) a physician selected by the Company or its insurers, and acceptable to the Executive or the Executive's legal representative, has determined that the Executive is disabled within the meaning of the applicable disability plan for senior executives. (b) By the Company. -------------- (i) The Company may terminate the Executive's employment during the Employment Period for Cause or without Cause. For purposes of this Agreement, "Cause" shall mean (A) willful and continued failure by the Executive to substantially perform his duties under this Agreement, (B) the willful engaging by the Executive in gross misconduct which is materially and demonstrably injurious to the Company, or (C) the conviction of the Executive of a felony. No act or failure to act on the part of the Executive shall be considered "willful" unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive's action or omission was in the best interests of the Company. Any act or failure to act that is based upon authority given pursuant to a resolution duly adopted by the Board of Directors of the Company, or the advice of counsel for the Company, shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. (ii) A termination of the Executive's employment for Cause shall be effected in accordance with the following procedures. The Company shall give the Executive written notice ("Notice of Termination for Cause") of its intention to terminate the Executive's employment for Cause, setting forth in reasonable detail the specific conduct of the Executive that it considers to constitute Cause and the specific provision(s) of this Agreement on which it relies. Such notice shall be given no later than 60 days after the act or failure (or the last in a series of acts or failures) that the Company alleges to constitute Cause. The Executive shall have 30 days after receiving the Notice of Termination for Cause in which to cure such act or failure, to the extent such cure is possible. In the case of a termination under Section 4(b)(i)(A) or Section 4(b)(i)(B), if the Executive fails to cure such act or failure to the reasonable satisfaction of the Company, the Company shall give the Executive a second written notice stating that in the good faith opinion of the Board, the Executive is guilty of the conduct described in the Notice of Termination for Cause and that such conduct constitutes Cause under this Agreement. (c) Good Reason. ----------- (i) The Executive may terminate his employment during the Employment Period for Good Reason or without Good Reason. For purpose of this Agreement, "Good Reason" shall mean: (A) prior to the occurrence of a Change in Control, any reduction in the Executive's Annual Base Salary; (B) following a Change in Control: (1) any reduction in the Executive's Annual Base Salary, target annual bonus, target long-term incentive or Retirement benefit; (2) any adverse change in the Executive's title, authority, duties, responsibilities and reporting lines or the assignment to the Executive of any duties or responsibilities inconsistent in any respect with those customarily associated with the position of the Executive immediately prior to the Change in Control; (3) any purported termination of the Executive's employment by the Company for a reason or in a manner not expressly permitted by this Agreement; (4) any failure by Enterprise to comply with Section 10(c) of this Agreement; or (5) any other material breach of this Agreement by the Company that either is not taken in good faith or, even if taken in good faith, is not remedied by the Company promptly after receipt of notice thereof from the Executive. Following a Change in Control, the Executive's determination that an act or failure to act constitutes Good Reason shall be conclusively presumed to be valid unless such determination is decided to be unreasonable by an arbitrator pursuant to Section 9. (ii) A termination of employment by the Executive for Good Reason shall be effectuated by giving the Company written notice ("Notice of Termination for Good Reason") of the termination, setting forth in reasonable detail the specific acts or omissions of the Company that constitute Good Reason and the specific provision(s) of this Agreement on which the Executive relies. Unless the CEO determines otherwise, a Notice of Termination for Good Reason by the Executive must be made within 60 days after the Executive first has actual knowledge of the act or omission (or the last in a series of acts or omissions) that the Executive alleges to constitute Good Reason, and the Company shall have 30 days from the receipt of such Notice of Termination for Good Reason to cure the conduct cited therein. A termination of employment by the Executive for Good Reason shall be effective on the final day of such 30-day cure period unless prior to such time the Company has cured the specific conduct asserted by the Executive to constitute Good Reason to the reasonable satisfaction of the Executive. (iii) A termination of the Executive's employment by the Executive without Good Reason, including Retirement, shall be effected by giving the Company at least 30 days' written notice specifying the effective date of termination. (d) Date of Termination. The "Date of Termination" means the date of the Executive's death, the Disability Effective Date, or the date on which the termination of the Executive's employment by the Company for Cause or without Cause or by the Executive for Good Reason or without Good Reason, including Retirement, is effective, as the case may be. 5. Obligations of the Company upon Termination. ------------------------------------------- (a) Good Reason; Other Than for Cause. If, during the Employment Period, the Company shall terminate the Executive's employment other than for Cause, death or Disability, or the Executive shall terminate his employment for Good Reason: (i) the Company shall pay to the Executive in a lump sum in cash, within 15 days after the Date of Termination, the aggregate of the amounts set forth in clauses A and B below: A. The sum of: (1) the Executive's Annual Base Salary through the Date of Termination; (2) the product of (x) the "target" annual bonus under Section 3(b) (the "Target Bonus") and (y) a fraction, the numerator of which is the number of days in the current calendar year through the Date of Termination, and the denominator of which is 365; and (3) any accrued vacation pay; in each case to the extent not theretofore paid (the sum of the amounts described in clauses (1), (2) and (3) shall be hereinafter referred to as the "Accrued Obligations"); and B. the amount equal to the product of (1) two and (2) the sum of (x) the Executive's Annual Base Salary and (y) the Target Bonus. (ii) the Option Award shall vest in accordance with Section 3(d)(i); (iii) any stock awards, stock options, other than the Option Award, stock appreciation rights or other equity-based awards that were outstanding immediately prior to the Date of Termination ("Prior Equity Awards") shall vest and/or become exercisable in accordance with the underlying plan for such Prior Equity Award; (iv) for two years after the Executive's Date of Termination or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue benefits to the Executive and/or the Executive's family at least equal to those which would have been provided to them in accordance with the welfare plans, programs, practices and policies described in Section 3(e) of this Agreement if the Executive's employment had not been terminated or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies and their families, provided however, that if the Executive becomes reemployed with another employer and is eligible to receive medical or dental benefits under another employer provided plan, the medical and dental benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility; (v) any compensation previously deferred (other than pursuant to a tax-qualified plan) by or on behalf of the Executive (together with any accrued interest or earnings thereon), whether or not then vested, shall become vested on the Date of Termination and shall be paid in accordance with the terms of the plan, policy or practice under which it was deferred; (vi) the Company shall, at its sole expense as incurred, provide the Executive with outplacement services suitable to the Executive's position for a period not to exceed two years with a nationally recognized outplacement firm; and, (vii) to the extent not theretofore paid or provided, the Company shall pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is entitled to receive under any plan, program, policy, practice, contract or agreement of the Company and its affiliated companies (other than medical or dental benefits if the Executive is eligible for such benefits to be provided by a subsequent employer), including earned but unpaid stock and similar compensation but excluding any severance plan or policy (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"). (b) Cause; Other than for Good Reason. If the Executive's employment shall be terminated for Cause during the Employment Period, or if the Executive voluntarily terminates employment during the Employment Period, excluding a resignation for Good Reason, the Company shall have no further payment obligations to the Executive other than for amounts described in Sections 5(a)(i)(A)(1) and 5(a)(i)(A)(3) and the timely payment or provision of Other Benefits. In such case, all such amounts shall be paid to the Executive in a lump sum within 30 days of the Date of Termination. Any unvested portion of the Option Award shall be forfeited in accordance with Section 3(d)(i). (c) Death. If the Executive's employment terminates by reason of the Executive's death during the Employment Period, all Accrued Obligations as of the time of death shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination and the Executive's estate or beneficiary shall be entitled to any Other Benefits in accordance with their terms. In addition, the Option Award shall vest in accordance with Section 3(d)(i). Any Prior Equity Awards shall vest and/or become exercisable, as the case may be, as of the Date of Termination and the Executive's estate or beneficiary, as the case may be, shall have the right to exercise any such stock option, stock appreciation right or other exercisable equity-based award until the earlier of (A) one year from the Date of Termination (or such longer period as may be provided under the terms of any such stock option, stock appreciation right or other equity-based award) and (B) the normal expiration date of such stock option, stock appreciation right or other equity-based award. (d) Disability. If the Executive's employment is terminated by reason of Disability during the Employment Period, all Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination, and the Executive shall be entitled to any Other Benefits in accordance with their terms. In addition, the Option Award shall vest in accordance with Section 3(d)(i). Any Prior Equity Awards shall vest immediately and/or become exercisable, as the case may be, and the Executive shall have the right to exercise any such stock option, stock appreciation right or other exercisable equity-based award until the earlier of (A) one year from the Date of Termination (or such longer period as may be provided under the terms of any such stock option, stock appreciation right or other equity-based award) and (B) the normal expiration date of such stock option, stock appreciation right or other equity-based award. (e) Retirement. If the Executive's employment terminates as a result of Retirement, the Executive shall be paid the Accrued Obligations in a lump sum in cash within 30 days of the Date of Termination and the Executive shall be entitled to any Other Benefits in accordance with their terms. Any remaining portion of the Option Award shall vest or be forfeited in accordance with Section 3(d)(i). 6. Change in Control. ----------------- (a) Benefits Upon a Change in Control. The Executive's rights upon a termination of employment that occurs following a Change in Control shall be as specified in Section 5 generally for termination of employment, except (i) the amount payable under 5(a)(i)(B) shall be three times the sum of (x) the Executive's Annual Base Salary and (y) the Target Bonus; (ii) the benefits under Section 5(a)(iv) shall be provided for three years after the Date of Termination and the Executive's eligibility (but not the time of commencement of such benefits) for retiree benefits pursuant to such plans, practices, programs and policies shall be determined as if the Executive had remained employed until three years after the Date of Termination and to have retired on the last day of such period; (iii) the Option Award shall have vested in accordance with Section 3(d)(i); and (iv) the Executive shall be paid within 15 days after the Date of Termination, an amount equal to the excess of (A) the actuarial equivalent of the benefit under the Company's applicable qualified defined benefit retirement plan in which the Executive is participating immediately prior to his Date of Termination (the "Retirement Plan") (utilizing the rate used to determine lump sums and, to the extent applicable, other actuarial assumptions no less favorable to the Executive than those in effect under the Retirement Plan immediately prior to the Date of this Agreement), any SERPs in which the Executive participates and, to the extent applicable, any other defined benefit retirement arrangement between the Executive and the Company ("Other Pension Benefits") which the Executive would receive if the Executive's employment continued for three additional years beyond the Date of Termination, assuming for this purpose that all accrued benefits are fully vested, and, assuming that the Executive's compensation for such deemed additional period was the Executive's Annual Base Salary as in effect immediately prior to the Date of Termination and assuming a bonus in each year during such deemed additional period equal to the Target Bonus, over (B) the actuarial equivalent of the Executive's actual benefit (paid or payable), if any, under the Retirement Plan, the SERPs and Other Pension Benefits as of the Date of Termination (utilizing the rate used to determine lump sums and, to the extent applicable, other actuarial assumptions no less favorable to the Executive than those in effect under the Retirement Plan immediately prior to the date of this Agreement). (b) Definition. For purposes of this Agreement, a "Change in Control" shall mean the occurrence of any of the following events after the date of this Agreement: (i) any "person" (within the meaning of Section 13(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") is or becomes the beneficial owner within the meaning of Rule 13d-3 under the Exchange Act (a "Beneficial Owner"), directly or indirectly, of securities of Enterprise (not including in the securities beneficially owned by such person any securities acquired directly from Enterprise or its affiliates) representing 25% or more of the combined voting power of Enterprise's then outstanding securities, excluding any person who becomes such a Beneficial Owner in connection with a transaction described in clause (A) of paragraph (iii) below; or (ii) the following individuals cease for any reason to constitute a majority of the number of directors of Enterprise then serving: individuals who, on the date of this Agreement, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of Enterprise) whose appointment or election by the Board or nomination for election by Enterprise's stockholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved or recommended; or (iii) there is consummated a merger or consolidation of Enterprise or any direct or indirect wholly-owned subsidiary of Enterprise with any other corporation, other than (A) a merger or consolidation which would result in the voting securities of Enterprise outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of Enterprise or any subsidiary of Enterprise, at least 75% of the combined voting power of the securities of Enterprise or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (B) a merger or consolidation effected to implement a recapitalization of Enterprise (or similar transaction) in which no person is or becomes the Beneficial Owner, directly or indirectly, of securities of Enterprise representing 25% or more of the combined voting power of Enterprise's then outstanding securities; or (iv) the shareholders of Enterprise approve a plan of complete liquidation or dissolution of Enterprise or there is consummated an agreement for the sale or disposition by Enterprise of all or substantially all of Enterprise's assets, other than a sale or disposition by Enterprise of all or substantially all of Enterprise's assets to an entity, at least 75% of the combined voting power of the voting securities of which are owned by stockholders of Enterprise in substantially the same proportions as their ownership of Enterprise immediately prior to such sale. Notwithstanding the foregoing, a "Change in Control" shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions immediately following which the record holders of the common stock of Enterprise immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in an entity which owns all or substantially all of the assets of Enterprise immediately following such transaction or series of transactions. 7. Confidential Information; No Competition. ---------------------------------------- (a) The Executive shall hold in a fiduciary capacity for the benefit of the Company all confidential information, knowledge or data (defined below) relating to the Company or any of its affiliates or subsidiaries, and their respective businesses, which shall have been obtained by the Executive during the Executive's employment by the Company or any of its affiliated companies and which shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). Upon Termination of the Executive's employment, he shall return to the Company all Company information. After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it, except (x) otherwise publicly available information, or (y) as may be necessary to enforce his rights under this Agreement or necessary to defend himself against a claim asserted directly or indirectly by the Company or its affiliates. Unless and until a determination has been made in accordance with Section 7(d) or Section 9 hereof that the Executive has violated this Section 7, an asserted violation of the provisions of this Section 7 shall not constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. (b) As used herein, the term "confidential information, knowledge or data" means all trade secrets, proprietary and confidential business information belonging to, used by, or in the possession of the Company or any of its affiliates and subsidiaries, including but not limited to information, knowledge or data related to business strategies, plans and financial information, mergers, acquisitions or consolidations, purchase or sale of property, leasing, pricing, sales programs or tactics, actual or past sellers, purchasers, lessees, lessors or customers, those with whom the Company or its affiliates and subsidiaries has begun negotiations for new business, costs, employee compensation, marketing and development plans, inventions and technology, whether such confidential information, knowledge or data is oral, written or electronically recorded or stored, except information in the public domain, information known by the Executive prior to employment with the Company, and information received by the Executive from sources other than the Company or its affiliates and subsidiaries, without obligation of confidentiality. (c) The confidential knowledge, information and data, as defined in the previous paragraph, gained in the performance of the Executive's duties hereunder may be valuable to those who are now, or might become, competitors of the Company or its affiliates and subsidiaries. Accordingly, the Executive agrees that, without the written consent of Enterprise, he will not, for the period of one year from Date of Termination or completion of the Employment Period, whichever occurs first, directly own, manage, operate, join, control, become employed by, consult to or participate in the ownership, management, or control of any business which is in direct competition with the Company and/or its affiliates and subsidiaries. Further, the Executive agrees that, for two years following the Date of Termination, he will not, directly or indirectly, solicit or hire, or encourage the solicitation or hiring of any person who was a managerial or higher level employee of the Company at any time during the term of the Executive's employment by the Company by any employer other than the Company for any position as an employee, independent contractor, consultant or otherwise. The foregoing agreement of the Executive shall not apply to any person after 6 months have elapsed subsequent to the date on which such person's employment by the Company has terminated. In the case of any such prohibited activity, the Executive shall not be entitled to post-employment payments (including any unexercised options under the Option Award). (d) In the event of a breach by the Executive of any of the agreements set forth in Paragraphs (a), (b) or (c) above, it is agreed that the Company shall suffer irreparable harm for which money damages are not an adequate remedy, and that, in the event of such breach, the Company shall be entitled to obtain an order of a court of competent jurisdiction for equitable relief from such breach, including, but not limited to, temporary restraining orders and preliminary and/or permanent injunctions against the breach of such agreements by the Executive. In the event that the Company should initiate any legal action for the breach or enforcement of any of the provisions contained in this Section 7 and the Company does not prevail in such action, the Company shall promptly reimburse the Executive the full amount of any court costs, filing fees, attorney's fees which the Executive incurs in defending such action, and any loss of income during the period of such litigation. 8. Full Settlement. --------------- (a) No Duty to Mitigate; No Reduction. Except as provided in Section 7(c), and except to the extent that a Court under Section 7(d) or an arbitrator appointed under Section 9 shall determine to permit an offset in respect of a violation by the Executive of his obligations under Section 7, the Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and, except as specifically provided in Section 5(a)(iv) and Section 5(a)(vii) with respect to certain medical and dental benefits, such amounts shall not be reduced whether or not the Executive obtains other employment. (b) Non-exclusivity of Rights. Except as provided in Section 7(c), nothing in the Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies for which the Executive may qualify. Vested benefits and other amounts that the Executive is otherwise entitled to receive under the incentive compensation plans referred to in Section 3(c), the SERPs, or any other plan, policy, practice of program of the Company or any of its affiliated companies on or after the Date of Termination shall be payable in accordance with the terms of each such plan, policy, practice or program, as the case may be, except as explicitly modified by this Agreement. 9. Disputes Except with respect to equitable relief provided for in Section 7(d), any dispute about the validity, interpretation, effect or alleged violation of this Agreement shall be resolved by confidential binding arbitration before one arbitrator to be held in Newark, New Jersey in accordance with the Employment Dispute Resolution Rules of the American Arbitration Association and the United States Arbitration Act. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereover. All costs and expenses incurred by the Company or the Executive or the Executive's beneficiaries in connection with any such controversy or dispute, including without limitation reasonable attorney's fees, shall be borne by the Company as incurred, except that the Executive shall be responsible for any such costs and expenses incurred in connection with any claim determined by the arbitrator to have been without reasonable basis or to have been brought in bad faith. The Executive shall be entitled to interest at the applicable Federal rate provided for in Section 7872 (f) (2)(A) of the Internal Revenue Code of 1986, as amended (the "Code"), on any delayed payment which the arbitrator determine he was entitled to under this Agreement. 10. Successors. ---------- (a) No Assignment by Executive. This Agreement is personal to the Executive and without the prior written consent of Enterprise shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) Successors to Enterprise. This Agreement shall inure to the benefit of and be binding upon Enterprise and its successors and assigns. (c) Performance by a Successor to Enterprise. Enterprise will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of Enterprise to assume expressly and agree to perform this Agreement in the same manner and to the same extent that Enterprise would be required to perform it if no such succession had taken place. As used in this Agreement, "Enterprise" shall mean Enterprise as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 11. Certain Additional Payments by the Company. ------------------------------------------ (a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 11) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income and employment taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. (b) Subject to the provisions of Section 11(c), all determinations required to be made under this Section 11, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by the Company's independent auditors or such other certified public accounting firm as may be jointly designated by the Executive and the Company (the "Accounting Firm"), which shall provide detailed supporting calculations both to the Company and the Executive. All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 11, shall be paid by the Company to the Executive within 15 days of the receipt of the Accounting Firm's determination. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 11(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive. (c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which he gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) give the Company any information reasonably requested by the Company relating to such claim, (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iii) cooperate with the Company in good faith in order effectively to contest such claim, and (iv) permit the Company to participate in any proceedings relating to such claim; provided however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 11(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 11(c), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of Section 11(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 11(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 12. Miscellaneous. ------------- (a) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey applicable to agreements executed and performed entirely therein. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) Notices. All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: 80 Park Plaza P. O. Box 1171 Newark, NJ 07102 If to the Company: 80 Park Plaza P. O. Box 1171 Newark, NJ 07102 Attention: Vice President and General Counsel or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (c) Invalidity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. If any provision of this Agreement shall be held invalid or unenforceable in part, the remaining portion of such provision, together with all other provisions of this Agreement, shall remain valid and enforceable and continue in full force and effect to the fullest extent consistent with law. Further, to the extent that a provision is to be held invalid or unenforceable, it shall be limited or construed in a manner that is valid and enforceable and gives maximum permissible effect to the provision and the intent of this Agreement. (d) Tax Withholding. Notwithstanding any other provision of this Agreement, the Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) Failure to Assert Rights. The Executive's or the Company's failure to insist upon strict compliance with any provisions of, or to assert any right under, this Agreement shall not be deemed to be a waiver of such provision or right or of any other provision of or right under this Agreement. (f) No Alienation. The rights and benefits of the Executive under this Agreement may not be anticipated, assigned, alienated or subject to attachment, garnishment, levy, execution or other legal or equitable process except as required by law. Any attempt by the Executive to anticipate, alienate, assign, sell, transfer, pledge, encumber or charge the same shall be void. Payments hereunder shall not be considered assets of the Executive in the event of insolvency or bankruptcy. (g) Entire Agreement. This Employment Agreement represents the complete agreement between the Executive and the Company relating to employment and termination and may not be altered or changed except by written agreement executed by the parties hereto or their respective successors or legal representatives. IN WITNESS WHEREOF, the Executive and, pursuant to due authorization from its Board of Directors, the Company have caused this Agreement to be executed as of the day and year first above written. By: ROBERT J. DOUGHERTY, JR. ________________________________ Robert J. Dougherty, Jr. President and Chief Operating Officer PSEG Energy Holdings Inc. PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED By: E. JAMES FERLAND ________________________________ E. James Ferland Chairman of the Board, President and Chief Executive Officer EX-10 4 0004.txt KOEPPE EMPLOYMENT AGREEMENT Exhibit 10a(21) EMPLOYMENT AGREEMENT AGREEMENT, by and between Public Service Enterprise Group Incorporated, a New Jersey Corporation ("Enterprise") and Alfred C. Koeppe (the "Executive"), dated as of October 17, 2000. WHEREAS, the Executive is currently serving as President and Chief Operating Officer of Public Service Electric and Gas Company, a New Jersey Corporation, and a wholly-owned subsidiary of Enterprise (Enterprise and its subsidiaries and affiliates being collectively hereinafter referred to as the "Company"). WHEREAS, in consideration of the substantial benefits to be provided by the Company pursuant to this Agreement, the Executive is willing to commit himself to be employed by the Company on the terms and conditions herein set forth; and WHEREAS, the parties desire to enter into this Agreement setting forth the terms and conditions for the employment relationship of the Executive with the Company during the Employment Period (as hereinafter defined): NOW, THEREFORE, IN CONSIDERATION of the mutual premises, covenants and agreements set forth below, it is hereby agreed as follows: 1. General. ------- (a) Employment. The Company agrees to employ the Executive, and the Executive agrees to be employed by the Company, in accordance with the terms and provisions of this Agreement during the Employment Period. (b) Term. The term of the Executive's employment under this Agreement (the "Employment Period") shall commence as of the date hereof (the "Effective Date") and shall continue until October 16, 2005. In the event a Change in Control occurs during the Employment Period, the term of the Executive's employment shall (unless terminated earlier pursuant to Section 4 hereof) automatically continue until the later of the last day of the Employment Period or the second anniversary of the Change in Control. In the event this Agreement is extended as provided in the preceding sentence, the Employment Period shall be the period from the Effective Date to the second anniversary of the Change in Control. 2. Position and Attention to Duties. -------------------------------- (a) Position. During the Employment Period, the Executive shall serve as President and Chief Operating Officer of Public Service Electric and Gas Company or in another senior executive position or positions for the Company, as determined by the Chief Executive Officer ("CEO") and Board of Directors ("Board") of Enterprise. (b) Attention. During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote full attention and time during normal business hours to the business and affairs of the Company and to use his reasonable best efforts to perform such responsibilities in a professional manner. It shall not be a violation of this Agreement for the Executive to (i) serve on corporate, civic or charitable boards or committees, (ii) deliver lectures, fulfill speaking engagements or teach at educational institutions and (iii) manage personal investments, so long as such activities do not interfere with the performance of the Executive's responsibilities as an officer and director of the Company in accordance with this Agreement. 3. Compensation. ------------ Except as modified by this Agreement, the Executive's compensation shall be provided in accordance with the Company's standard compensation and payroll practices as in effect from time to time. The aggregate of Base Salary, Annual Incentive Compensation and Long-Term Incentives in paragraphs (a), (b) and (c) below shall be determined based upon competitive practices for companies of comparable size and standing. (a) Base Salary. The annual rate of base salary payable to the Executive during the Employment Period (the "Annual Base Salary") shall be established by the Organization and Compensation Committee of the Board (the "Compensation Committee"). During the Employment Period, the Annual Base Salary shall be reviewed by the Compensation Committee for possible increase at least annually. Annual Base Salary shall not be reduced, and after any such increase and the term "Annual Base Salary" shall thereafter refer to the Annual Base Salary as so increased. (b) Annual Incentive Compensation. The Board has established and intends to continue an annual incentive compensation plan for the benefit of the officers and other key employees of the Company, including the Executive, based on competitive practices for companies of comparable size and standing. The performance objectives for the Executive in respect of such incentive will be determined by the Compensation Committee in accordance with past practices. (c) Long-Term Incentives. The Board has established and intends to continue a long-term incentive plan for the benefit of the officers and other key employees of the Company, including the Executive, based on competitive practices for companies of comparable size and standing. Such plan may, in the judgment of the Compensation Committee, provide for stock options, stock appreciation rights, restricted stock or stock units, performance stock or units and/or other type of long-term incentive awards. The type and amount of equity and any other long-term incentive grants will be determined by the Compensation Committee from time to time, and awards thereunder shall be payable to the Executive in accordance with the long-term incentive plan or plans in effect from time to time. (d) Option Award. ------------ (i) In consideration of the commitment he will assume during the Employment Period, the Executive shall be granted an award (the "Option Award") of non-qualified options under the Enterprise Long-Term Incentive Plan ("LTIP") to purchase 250,000 shares of the Common Stock without nominal or par value of Enterprise ("Stock"). Options granted under the Option Award are herein referred to as "Options". The grant price of the Options shall be the closing price of the Common Stock on the New York Stock Exchange on the Effective Date. The Executive's right to the Option Award shall vest and become exercisable in accordance with the following schedule, provided that the Executive has remained continuously employed by the Company during the Employment Period through the dates indicated below: Date Number of Shares ---- ---------------- October 17, 2001 50,000 October 17, 2002 50,000 October 17, 2003 50,000 October 17, 2004 50,000 October 17, 2005 50,000 If, during the Employment Period (1) there occurs a Change in Control, or (2) Enterprise enters into an agreement to merge or consolidate with any other corporation which, if consummated, would meet the requirements of Section 6(b) (iii) and the shareholders of Enterprise approve that agreement, the entire Option Award shall vest and become exercisable. If, during the Employment Period, the Company terminates the Executive's employment without Cause or the Executive terminates his employment for Good Reason, or the Executive's Employment terminates by reason of death or Disability, the Executive's right to the entire Option Award shall vest and become exercisable as of the Date of Termination. If, during the Employment Period, the Company terminates the Executive's employment for Cause or the Executive terminates his employment without Good Reason, including Retirement, the Executive shall forfeit all right to all shares of the Option Award that are not vested as of the Date of Termination. (ii) The Options shall expire ten (10) years after the Effective Date. (iii) Once Options become exercisable hereunder, the Executive may exercise such Options in any manner permitted by the LTIP. All vested options shall be exercised or shall be forfeited no later than the earlier of three years after termination of employment or 10 years after the Effective Date. (iv) Unless specifically provided by this Agreement, all terms and conditions of the Options granted hereunder shall be governed by the LTIP. (v) The Compensation Committee may make such provisions and take such steps as it may deem necessary or appropriate for the withholding of any taxes that the Company is required by law or regulation of any governmental authority, whether federal, state or local, domestic or foreign, to withhold in connection with the Option Award, including, but not limited to (1) withholding delivery of the certificate for shares of Stock until the Executive reimburses the Company for the amount it is required to withhold with respect to such taxes, (2) the canceling of any number of shares of Stock issuable to the Executive in an amount necessary to reimburse the Company for the amount it is required to so withhold, or (3) withholding the amount due from the Executive's other compensation. (e) Employee Benefit Programs. During the Employment Period, (i) the Executive shall be eligible to participate in all savings and retirement plans, practices, policies and programs to the same extent as other senior executives of the Company and (ii) the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company, other than severance plans, practices, policies and programs but including, without limitation, medical, prescription, dental, disability, salary continuance, employee life insurance, group life insurance, accidental death and travel accident insurance plans and programs, and, upon retirement, all applicable retirement benefit plans to the same extent and subject to the same terms, conditions, cost-sharing requirements and the like, as other senior executives of the Company, as such plans may be amended from time to time, and as supplemented hereby. Following a Change in Control, no benefit coverage available to the Executive and/or to his family under any such plan, practice, policy or program shall be materially reduced without the prior written consent of the Executive. (f) Retirement Benefit. During the Employment Period, the Executive shall participate in Enterprise's Pension Plan, and also in Enterprise's Limited Supplemental Benefits Plan, Mid-Career Hire Plan, Reinstatement Plan and such other supplemental executive retirement plans as may be adopted and amended by Enterprise from time to time ("SERPs"), such that the aggregate value of the retirement benefits that he and his beneficiaries will receive under all pension benefit plans of the Company (whether qualified or not) will not be less than the benefits he would have received had he continued to participate in such plans, as in effect immediately before the date hereof through the earlier of the end of the Employment Period or Retirement, and giving effect to the service credits set forth in Section 8 of the employment agreement dated August 23, 1995, between PSE&G and the Executive (the "PSE&G Employment Agreement"), the terms of which Section 8 are incorporated herein by reference, and a copy of which PSE&G Employment Agreement is attached hereto. It is agreed that the Option Award and any dividends or other distributions in respect of the Option Award shall not be included in any pension calculation. The Executive's right to retire shall be governed by the Enterprise Pension Plan ("Retirement"). (g) Expenses. The Executive is authorized to incur reasonable expenses in carrying out his duties and responsibilities under this Agreement. The Company shall promptly reimburse him for all such expenses in accordance with the policies of the Company in effect from time to time for reimbursement of expenses for senior executives, and subject to documentation provided by the Executive in accordance with such Company policies. (h) Fringe Benefits. During the Employment Period, the Executive shall participate in all fringe benefits and perquisites available to senior executives of the Company, including provision of an automobile, on terms and conditions that are commensurate with his positions and responsibilities at the Company. (i) Vacation. During the Employment Period, the Executive shall be entitled to paid vacation in accordance with Company policy for its most senior executives as in effect from time to time, or six weeks vacation, whichever is greater. (j) Deferred Compensation. The Executive will retain all of his rights in any compensation deferred prior to the date hereof in accordance with the Deferred Compensation Plan, including earnings thereon, and following the date hereof the obligations of the Company to pay such deferred compensation at the times and in the manner specified in the Deferred Compensation Plan will continue. 4. Termination of Employment. ------------------------- (a) Death or Disability. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. If the Company determines in good faith that the Disability of the Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Executive written notice in accordance with Section 4(b) of this Agreement of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. For purposes of this Agreement, "Disability" means that (i) the Executive has been unable, for the period, if any, specified in the Company's disability plan for senior executives, but not less than a period of 180 consecutive days, to perform the Executive's duties under this Agreement and (ii) a physician selected by the Company or its insurers, and acceptable to the Executive or the Executive's legal representative, has determined that the Executive is disabled within the meaning of the applicable disability plan for senior executives. (b) By the Company. -------------- (i) The Company may terminate the Executive's employment during the Employment Period for Cause or without Cause. For purposes of this Agreement, "Cause" shall mean (A) willful and continued failure by the Executive to substantially perform his duties under this Agreement, (B) the willful engaging by the Executive in gross misconduct which is materially and demonstrably injurious to the Company, or (C) the conviction of the Executive of a felony. No act or failure to act on the part of the Executive shall be considered "willful" unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive's action or omission was in the best interests of the Company. Any act or failure to act that is based upon authority given pursuant to a resolution duly adopted by the Board of Directors of the Company, or the advice of counsel for the Company, shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. (ii) A termination of the Executive's employment for Cause shall be effected in accordance with the following procedures. The Company shall give the Executive written notice ("Notice of Termination for Cause") of its intention to terminate the Executive's employment for Cause, setting forth in reasonable detail the specific conduct of the Executive that it considers to constitute Cause and the specific provision(s) of this Agreement on which it relies. Such notice shall be given no later than 60 days after the act or failure (or the last in a series of acts or failures) that the Company alleges to constitute Cause. The Executive shall have 30 days after receiving the Notice of Termination for Cause in which to cure such act or failure, to the extent such cure is possible. In the case of a termination under Section 4(b)(i)(A) or Section 4(b)(i)(B), if the Executive fails to cure such act or failure to the reasonable satisfaction of the Company, the Company shall give the Executive a second written notice stating that in the good faith opinion of the Board, the Executive is guilty of the conduct described in the Notice of Termination for Cause and that such conduct constitutes Cause under this Agreement. (c) Good Reason. ----------- (i) The Executive may terminate his employment during the Employment Period for Good Reason or without Good Reason. For purpose of this Agreement, "Good Reason" shall mean: (A) prior to the occurrence of a Change in Control, any reduction in the Executive's Annual Base Salary; (B) following a Change in Control: (1) any reduction in the Executive's Annual Base Salary, target annual bonus, target long-term incentive or Retirement benefit; (2) any adverse change in the Executive's title, authority, duties, responsibilities and reporting lines or the assignment to the Executive of any duties or responsibilities inconsistent in any respect with those customarily associated with the position of the Executive immediately prior to the Change in Control; (3) any purported termination of the Executive's employment by the Company for a reason or in a manner not expressly permitted by this Agreement; (4) any failure by Enterprise to comply with Section 10(c) of this Agreement; or (5) any other material breach of this Agreement by the Company that either is not taken in good faith or, even if taken in good faith, is not remedied by the Company promptly after receipt of notice thereof from the Executive. Following a Change in Control, the Executive's determination that an act or failure to act constitutes Good Reason shall be conclusively presumed to be valid unless such determination is decided to be unreasonable by an arbitrator pursuant to Section 9. (ii) A termination of employment by the Executive for Good Reason shall be effectuated by giving the Company written notice ("Notice of Termination for Good Reason") of the termination, setting forth in reasonable detail the specific acts or omissions of the Company that constitute Good Reason and the specific provision(s) of this Agreement on which the Executive relies. Unless the CEO determines otherwise, a Notice of Termination for Good Reason by the Executive must be made within 60 days after the Executive first has actual knowledge of the act or omission (or the last in a series of acts or omissions) that the Executive alleges to constitute Good Reason, and the Company shall have 30 days from the receipt of such Notice of Termination for Good Reason to cure the conduct cited therein. A termination of employment by the Executive for Good Reason shall be effective on the final day of such 30-day cure period unless prior to such time the Company has cured the specific conduct asserted by the Executive to constitute Good Reason to the reasonable satisfaction of the Executive. (iii) A termination of the Executive's employment by the Executive without Good Reason, including Retirement, shall be effected by giving the Company at least 30 days' written notice specifying the effective date of termination. (d) Date of Termination. The "Date of Termination" means the date of the Executive's death, the Disability Effective Date, or the date on which the termination of the Executive's employment by the Company for Cause or without Cause or by the Executive for Good Reason or without Good Reason, including Retirement, is effective, as the case may be. 5. Obligations of the Company upon Termination. ------------------------------------------- (a) Good Reason; Other Than for Cause. If, during the Employment Period, the Company shall terminate the Executive's employment other than for Cause, death or Disability, or the Executive shall terminate his employment for Good Reason: (i) the Company shall pay to the Executive in a lump sum in cash, within 15 days after the Date of Termination, the aggregate of the amounts set forth in clauses A and B below: A. The sum of: (1) the Executive's Annual Base Salary through the Date of Termination; (2) the product of (x) the "target" annual bonus under Section 3(b) (the "Target Bonus") and (y) a fraction, the numerator of which is the number of days in the current calendar year through the Date of Termination, and the denominator of which is 365; and (3) any accrued vacation pay; in each case to the extent not theretofore paid (the sum of the amounts described in clauses (1), (2) and (3) shall be hereinafter referred to as the "Accrued Obligations"); and B. the amount equal to the product of (1) two and (2) the sum of (x) the Executive's Annual Base Salary and (y) the Target Bonus. (ii) the Option Award shall vest in accordance with Section 3(d)(i); (iii) any stock awards, stock options, other than the Option Award, stock appreciation rights or other equity-based awards that were outstanding immediately prior to the Date of Termination ("Prior Equity Awards") shall vest and/or become exercisable in accordance with the underlying plan for such Prior Equity Award; (iv) for two years after the Executive's Date of Termination or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue benefits to the Executive and/or the Executive's family at least equal to those which would have been provided to them in accordance with the welfare plans, programs, practices and policies described in Section 3(e) of this Agreement if the Executive's employment had not been terminated or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies and their families, provided however, that if the Executive becomes reemployed with another employer and is eligible to receive medical or dental benefits under another employer provided plan, the medical and dental benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility; (v) any compensation previously deferred (other than pursuant to a tax-qualified plan) by or on behalf of the Executive (together with any accrued interest or earnings thereon), whether or not then vested, shall become vested on the Date of Termination and shall be paid in accordance with the terms of the plan, policy or practice under which it was deferred; (vi) the Company shall, at its sole expense as incurred, provide the Executive with outplacement services suitable to the Executive's position for a period not to exceed two years with a nationally recognized outplacement firm; and, (vii) to the extent not theretofore paid or provided, the Company shall pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is entitled to receive under any plan, program, policy, practice, contract or agreement of the Company and its affiliated companies (other than medical or dental benefits if the Executive is eligible for such benefits to be provided by a subsequent employer), including earned but unpaid stock and similar compensation but excluding any severance plan or policy (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"). (b) Cause; Other than for Good Reason. If the Executive's employment shall be terminated for Cause during the Employment Period, or if the Executive voluntarily terminates employment during the Employment Period, excluding a resignation for Good Reason, the Company shall have no further payment obligations to the Executive other than for amounts described in Sections 5(a)(i)(A)(1) and 5(a)(i)(A)(3) and the timely payment or provision of Other Benefits. In such case, all such amounts shall be paid to the Executive in a lump sum within 30 days of the Date of Termination. Any unvested portion of the Option Award shall be forfeited in accordance with Section 3(d)(i). (c) Death. If the Executive's employment terminates by reason of the Executive's death during the Employment Period, all Accrued Obligations as of the time of death shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination and the Executive's estate or beneficiary shall be entitled to any Other Benefits in accordance with their terms. In addition, the Option Award shall vest in accordance with Section 3(d)(i). Any Prior Equity Awards shall vest and/or become exercisable, as the case may be, as of the Date of Termination and the Executive's estate or beneficiary, as the case may be, shall have the right to exercise any such stock option, stock appreciation right or other exercisable equity-based award until the earlier of (A) one year from the Date of Termination (or such longer period as may be provided under the terms of any such stock option, stock appreciation right or other equity-based award) and (B) the normal expiration date of such stock option, stock appreciation right or other equity-based award. (d) Disability. If the Executive's employment is terminated by reason of Disability during the Employment Period, all Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination, and the Executive shall be entitled to any Other Benefits in accordance with their terms. In addition, the Option Award shall vest in accordance with Section 3(d)(i). Any Prior Equity Awards shall vest immediately and/or become exercisable, as the case may be, and the Executive shall have the right to exercise any such stock option, stock appreciation right or other exercisable equity-based award until the earlier of (A) one year from the Date of Termination (or such longer period as may be provided under the terms of any such stock option, stock appreciation right or other equity-based award) and (B) the normal expiration date of such stock option, stock appreciation right or other equity-based award. (e) Retirement. If the Executive's employment terminates as a result of Retirement, the Executive shall be paid the Accrued Obligations in a lump sum in cash within 30 days of the Date of Termination and the Executive shall be entitled to any Other Benefits in accordance with their terms. Any remaining portion of the Option Award shall vest or be forfeited in accordance with Section 3(d)(i). 6. Change in Control. ----------------- (a) Benefits Upon a Change in Control. The Executive's rights upon a termination of employment that occurs following a Change in Control shall be as specified in Section 5 generally for termination of employment, except (i) the amount payable under 5(a)(i)(B) shall be three times the sum of (x) the Executive's Annual Base Salary and (y) the Target Bonus; (ii) the benefits under Section 5(a)(iv) shall be provided for three years after the Date of Termination and the Executive's eligibility (but not the time of commencement of such benefits) for retiree benefits pursuant to such plans, practices, programs and policies shall be determined as if the Executive had remained employed until three years after the Date of Termination and to have retired on the last day of such period; (iii) the Option Award shall have vested in accordance with Section 3(d)(i); and (iv) the Executive shall be paid within 15 days after the Date of Termination, an amount equal to the excess of (A) the actuarial equivalent of the benefit under the Company's applicable qualified defined benefit retirement plan in which the Executive is participating immediately prior to his Date of Termination (the "Retirement Plan") (utilizing the rate used to determine lump sums and, to the extent applicable, other actuarial assumptions no less favorable to the Executive than those in effect under the Retirement Plan immediately prior to the Date of this Agreement), any SERPs in which the Executive participates and, to the extent applicable, any other defined benefit retirement arrangement between the Executive and the Company ("Other Pension Benefits") which the Executive would receive if the Executive's employment continued for three additional years beyond the Date of Termination, assuming for this purpose that all accrued benefits are fully vested, and, assuming that the Executive's compensation for such deemed additional period was the Executive's Annual Base Salary as in effect immediately prior to the Date of Termination and assuming a bonus in each year during such deemed additional period equal to the Target Bonus, over (B) the actuarial equivalent of the Executive's actual benefit (paid or payable), if any, under the Retirement Plan, the SERPs and Other Pension Benefits as of the Date of Termination (utilizing the rate used to determine lump sums and, to the extent applicable, other actuarial assumptions no less favorable to the Executive than those in effect under the Retirement Plan immediately prior to the date of this Agreement). (b) Definition. For purposes of this Agreement, a "Change in Control" shall mean the occurrence of any of the following events after the date of this Agreement: (i) any "person" (within the meaning of Section 13(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") is or becomes the beneficial owner within the meaning of Rule 13d-3 under the Exchange Act (a "Beneficial Owner"), directly or indirectly, of securities of Enterprise (not including in the securities beneficially owned by such person any securities acquired directly from Enterprise or its affiliates) representing 25% or more of the combined voting power of Enterprise's then outstanding securities, excluding any person who becomes such a Beneficial Owner in connection with a transaction described in clause (A) of paragraph (iii) below; or (ii) the following individuals cease for any reason to constitute a majority of the number of directors of Enterprise then serving: individuals who, on the date of this Agreement, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of Enterprise) whose appointment or election by the Board or nomination for election by Enterprise's stockholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved or recommended; or (iii) there is consummated a merger or consolidation of Enterprise or any direct or indirect wholly-owned subsidiary of Enterprise with any other corporation, other than (A) a merger or consolidation which would result in the voting securities of Enterprise outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of Enterprise or any subsidiary of Enterprise, at least 75% of the combined voting power of the securities of Enterprise or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (B) a merger or consolidation effected to implement a recapitalization of Enterprise (or similar transaction) in which no person is or becomes the Beneficial Owner, directly or indirectly, of securities of Enterprise representing 25% or more of the combined voting power of Enterprise's then outstanding securities; or (iv) the shareholders of Enterprise approve a plan of complete liquidation or dissolution of Enterprise or there is consummated an agreement for the sale or disposition by Enterprise of all or substantially all of Enterprise's assets, other than a sale or disposition by Enterprise of all or substantially all of Enterprise's assets to an entity, at least 75% of the combined voting power of the voting securities of which are owned by stockholders of Enterprise in substantially the same proportions as their ownership of Enterprise immediately prior to such sale. Notwithstanding the foregoing, a "Change in Control" shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions immediately following which the record holders of the common stock of Enterprise immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in an entity which owns all or substantially all of the assets of Enterprise immediately following such transaction or series of transactions. 7. Confidential Information; No Competition. ---------------------------------------- (a) The Executive shall hold in a fiduciary capacity for the benefit of the Company all confidential information, knowledge or data (defined below) relating to the Company or any of its affiliates or subsidiaries, and their respective businesses, which shall have been obtained by the Executive during the Executive's employment by the Company or any of its affiliated companies and which shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). Upon Termination of the Executive's employment, he shall return to the Company all Company information. After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it, except (x) otherwise publicly available information, or (y) as may be necessary to enforce his rights under this Agreement or necessary to defend himself against a claim asserted directly or indirectly by the Company or its affiliates. Unless and until a determination has been made in accordance with Section 7(d) or Section 9 hereof that the Executive has violated this Section 7, an asserted violation of the provisions of this Section 7 shall not constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. (b) As used herein, the term "confidential information, knowledge or data" means all trade secrets, proprietary and confidential business information belonging to, used by, or in the possession of the Company or any of its affiliates and subsidiaries, including but not limited to information, knowledge or data related to business strategies, plans and financial information, mergers, acquisitions or consolidations, purchase or sale of property, leasing, pricing, sales programs or tactics, actual or past sellers, purchasers, lessees, lessors or customers, those with whom the Company or its affiliates and subsidiaries has begun negotiations for new business, costs, employee compensation, marketing and development plans, inventions and technology, whether such confidential information, knowledge or data is oral, written or electronically recorded or stored, except information in the public domain, information known by the Executive prior to employment with the Company, and information received by the Executive from sources other than the Company or its affiliates and subsidiaries, without obligation of confidentiality. (c) The confidential knowledge, information and data, as defined in the previous paragraph, gained in the performance of the Executive's duties hereunder may be valuable to those who are now, or might become, competitors of the Company or its affiliates and subsidiaries. Accordingly, the Executive agrees that, without the written consent of Enterprise, he will not, for the period of one year from Date of Termination or completion of the Employment Period, whichever occurs first, directly own, manage, operate, join, control, become employed by, consult to or participate in the ownership, management, or control of any business which is in direct competition with the Company and/or its affiliates and subsidiaries. Further, the Executive agrees that, for two years following the Date of Termination, he will not, directly or indirectly, solicit or hire, or encourage the solicitation or hiring of any person who was a managerial or higher level employee of the Company at any time during the term of the Executive's employment by the Company by any employer other than the Company for any position as an employee, independent contractor, consultant or otherwise. The foregoing agreement of the Executive shall not apply to any person after 6 months have elapsed subsequent to the date on which such person's employment by the Company has terminated. In the case of any such prohibited activity, the Executive shall not be entitled to post-employment payments (including any unexercised options under the Option Award). (d) In the event of a breach by the Executive of any of the agreements set forth in Paragraphs (a), (b) or (c) above, it is agreed that the Company shall suffer irreparable harm for which money damages are not an adequate remedy, and that, in the event of such breach, the Company shall be entitled to obtain an order of a court of competent jurisdiction for equitable relief from such breach, including, but not limited to, temporary restraining orders and preliminary and/or permanent injunctions against the breach of such agreements by the Executive. In the event that the Company should initiate any legal action for the breach or enforcement of any of the provisions contained in this Section 7 and the Company does not prevail in such action, the Company shall promptly reimburse the Executive the full amount of any court costs, filing fees, attorney's fees which the Executive incurs in defending such action, and any loss of income during the period of such litigation. 8. Full Settlement. --------------- (a) No Duty to Mitigate; No Reduction. Except as provided in Section 7(c), and except to the extent that a Court under Section 7(d) or an arbitrator appointed under Section 9 shall determine to permit an offset in respect of a violation by the Executive of his obligations under Section 7, the Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and, except as specifically provided in Section 5(a)(iv) and Section 5(a)(vii) with respect to certain medical and dental benefits, such amounts shall not be reduced whether or not the Executive obtains other employment. (b) Non-exclusivity of Rights. Except as provided in Section 7(c), nothing in the Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies for which the Executive may qualify. Vested benefits and other amounts that the Executive is otherwise entitled to receive under the incentive compensation plans referred to in Section 3(c), the SERPs, or any other plan, policy, practice of program of the Company or any of its affiliated companies on or after the Date of Termination shall be payable in accordance with the terms of each such plan, policy, practice or program, as the case may be, except as explicitly modified by this Agreement. 9. Disputes Except with respect to equitable relief provided for in Section 7(d), any dispute about the validity, interpretation, effect or alleged violation of this Agreement shall be resolved by confidential binding arbitration before one arbitrator to be held in Newark, New Jersey in accordance with the Employment Dispute Resolution Rules of the American Arbitration Association and the United States Arbitration Act. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereover. All costs and expenses incurred by the Company or the Executive or the Executive's beneficiaries in connection with any such controversy or dispute, including without limitation reasonable attorney's fees, shall be borne by the Company as incurred, except that the Executive shall be responsible for any such costs and expenses incurred in connection with any claim determined by the arbitrator to have been without reasonable basis or to have been brought in bad faith. The Executive shall be entitled to interest at the applicable Federal rate provided for in Section 7872 (f) (2)(A) of the Internal Revenue Code of 1986, as amended (the "Code"), on any delayed payment which the arbitrator determine he was entitled to under this Agreement. 10. Successors. ---------- (a) No Assignment by Executive. This Agreement is personal to the Executive and without the prior written consent of Enterprise shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) Successors to Enterprise. This Agreement shall inure to the benefit of and be binding upon Enterprise and its successors and assigns. (c) Performance by a Successor to Enterprise. Enterprise will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of Enterprise to assume expressly and agree to perform this Agreement in the same manner and to the same extent that Enterprise would be required to perform it if no such succession had taken place. As used in this Agreement, "Enterprise" shall mean Enterprise as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 11. Certain Additional Payments by the Company. ------------------------------------------ (a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 11) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income and employment taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. (b) Subject to the provisions of Section 11(c), all determinations required to be made under this Section 11, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by the Company's independent auditors or such other certified public accounting firm as may be jointly designated by the Executive and the Company (the "Accounting Firm"), which shall provide detailed supporting calculations both to the Company and the Executive. All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 11, shall be paid by the Company to the Executive within 15 days of the receipt of the Accounting Firm's determination. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 11(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive. (c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which he gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) give the Company any information reasonably requested by the Company relating to such claim, (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iii) cooperate with the Company in good faith in order effectively to contest such claim, and (iv) permit the Company to participate in any proceedings relating to such claim; provided however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 11(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 11(c), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of Section 11(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 11(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 12. Miscellaneous. ------------- (a) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey applicable to agreements executed and performed entirely therein. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) Notices. All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: 80 Park Plaza P. O. Box 1171 Newark, NJ 07102 If to the Company: 80 Park Plaza P. O. Box 1171 Newark, NJ 07102 Attention: Vice President and General Counsel or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (c) Invalidity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. If any provision of this Agreement shall be held invalid or unenforceable in part, the remaining portion of such provision, together with all other provisions of this Agreement, shall remain valid and enforceable and continue in full force and effect to the fullest extent consistent with law. Further, to the extent that a provision is to be held invalid or unenforceable, it shall be limited or construed in a manner that is valid and enforceable and gives maximum permissible effect to the provision and the intent of this Agreement. (d) Tax Withholding. Notwithstanding any other provision of this Agreement, the Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) Failure to Assert Rights. The Executive's or the Company's failure to insist upon strict compliance with any provisions of, or to assert any right under, this Agreement shall not be deemed to be a waiver of such provision or right or of any other provision of or right under this Agreement. (f) No Alienation. The rights and benefits of the Executive under this Agreement may not be anticipated, assigned, alienated or subject to attachment, garnishment, levy, execution or other legal or equitable process except as required by law. Any attempt by the Executive to anticipate, alienate, assign, sell, transfer, pledge, encumber or charge the same shall be void. Payments hereunder shall not be considered assets of the Executive in the event of insolvency or bankruptcy. (g) Entire Agreement. This Employment Agreement represents the complete agreement between the Executive and the Company relating to employment and termination and may not be altered or changed except by written agreement executed by the parties hereto or their respective successors or legal representatives. This Agreement supersedes the PSE&G Employment Agreement, except Section 8 thereof, which is hereby incorporated by reference into this Agreement. IN WITNESS WHEREOF, the Executive and, pursuant to due authorization from its Board of Directors, the Company have caused this Agreement to be executed as of the day and year first above written. By: ALFRED C. KOEPPE ________________________________ Alfred C. Koeppe President and Chief Operating Officer Public Service Electric and Gas Company PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED By: E. JAMES FERLAND ________________________________ E. James Ferland Chairman of the Board, President and Chief Executive Officer EX-10 5 0005.txt MURRAY EMPLOYMENT AGREEMENT Exhibit 10a(22) EMPLOYMENT AGREEMENT AGREEMENT, by and between Public Service Enterprise Group Incorporated, a New Jersey Corporation ("Enterprise") and Robert C. Murray (the "Executive"), dated as of October 17, 2000. WHEREAS, the Executive is currently serving as Vice President and Chief Financial Officer of Enterprise and Executive Vice President - Finance of PSEG Services Corporation, both New Jersey Corporations and both wholly-owned subsidiaries of Enterprise (Enterprise and its subsidiaries and affiliates being collectively hereinafter referred to as the "Company"). WHEREAS, in consideration of the substantial benefits to be provided by the Company pursuant to this Agreement, the Executive is willing to commit himself to be employed by the Company on the terms and conditions herein set forth; and WHEREAS, the parties desire to enter into this Agreement setting forth the terms and conditions for the employment relationship of the Executive with the Company during the Employment Period (as hereinafter defined): NOW, THEREFORE, IN CONSIDERATION of the mutual premises, covenants and agreements set forth below, it is hereby agreed as follows: 1. General. ------- (a) Employment. The Company agrees to employ the Executive, and the Executive agrees to be employed by the Company, in accordance with the terms and provisions of this Agreement during the Employment Period. (b) Term. The term of the Executive's employment under this Agreement (the "Employment Period") shall commence as of the date hereof (the "Effective Date") and shall continue until October 16, 2005. In the event a Change in Control occurs during the Employment Period, the term of the Executive's employment shall (unless terminated earlier pursuant to Section 4 hereof) automatically continue until the later of the last day of the Employment Period or the second anniversary of the Change in Control. In the event this Agreement is extended as provided in the preceding sentence, the Employment Period shall be the period from the Effective Date to the second anniversary of the Change in Control. 2. Position and Attention to Duties. -------------------------------- (a) Position. During the Employment Period, the Executive shall serve as Vice President and Chief Financial Officer of Enterprise and Executive Vice President - Finance of PSEG Services Corporation or in another senior executive position or positions for the Company, as determined by the Chief Executive Officer ("CEO") and Board of Directors ("Board") of Enterprise. (b) Attention. During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote full attention and time during normal business hours to the business and affairs of the Company and to use his reasonable best efforts to perform such responsibilities in a professional manner. It shall not be a violation of this Agreement for the Executive to (i) serve on corporate, civic or charitable boards or committees, (ii) deliver lectures, fulfill speaking engagements or teach at educational institutions and (iii) manage personal investments, so long as such activities do not interfere with the performance of the Executive's responsibilities as an officer and director of the Company in accordance with this Agreement. 3. Compensation. ------------ Except as modified by this Agreement, the Executive's compensation shall be provided in accordance with the Company's standard compensation and payroll practices as in effect from time to time. The aggregate of Base Salary, Annual Incentive Compensation and Long-Term Incentives in paragraphs (a), (b) and (c) below shall be determined based upon competitive practices for companies of comparable size and standing. (a) Base Salary. The annual rate of base salary payable to the Executive during the Employment Period (the "Annual Base Salary") shall be established by the Organization and Compensation Committee of the Board (the "Compensation Committee"). During the Employment Period, the Annual Base Salary shall be reviewed by the Compensation Committee for possible increase at least annually. Annual Base Salary shall not be reduced, and after any such increase and the term "Annual Base Salary" shall thereafter refer to the Annual Base Salary as so increased. (b) Annual Incentive Compensation. The Board has established and intends to continue an annual incentive compensation plan for the benefit of the officers and other key employees of the Company, including the Executive, based on competitive practices for companies of comparable size and standing. The performance objectives for the Executive in respect of such incentive will be determined by the Compensation Committee in accordance with past practices. (c) Long-Term Incentives. The Board has established and intends to continue a long-term incentive plan for the benefit of the officers and other key employees of the Company, including the Executive, based on competitive practices for companies of comparable size and standing. Such plan may, in the judgment of the Compensation Committee, provide for stock options, stock appreciation rights, restricted stock or stock units, performance stock or units and/or other type of long-term incentive awards. The type and amount of equity and any other long-term incentive grants will be determined by the Compensation Committee from time to time, and awards thereunder shall be payable to the Executive in accordance with the long-term incentive plan or plans in effect from time to time. (d) Option Award. ------------ (i) In consideration of the commitment he will assume during the Employment Period, the Executive shall be granted an award (the "Option Award") of non-qualified options under the Enterprise Long-Term Incentive Plan ("LTIP") to purchase 250,000 shares of the Common Stock without nominal or par value of Enterprise ("Stock"). Options granted under the Option Award are herein referred to as "Options". The grant price of the Options shall be the closing price of the Common Stock on the New York Stock Exchange on the Effective Date. The Executive's right to the Option Award shall vest and become exercisable in accordance with the following schedule, provided that the Executive has remained continuously employed by the Company during the Employment Period through the dates indicated below: Date Number of Shares ---- ---------------- October 17, 2001 50,000 October 17, 2002 50,000 October 17, 2003 50,000 October 17, 2004 50,000 October 17, 2005 50,000 If, during the Employment Period (1) there occurs a Change in Control, or (2) Enterprise enters into an agreement to merge or consolidate with any other corporation which, if consummated, would meet the requirements of Section 6(b) (iii) and the shareholders of Enterprise approve that agreement, the entire Option Award shall vest and become exercisable. If, during the Employment Period, the Company terminates the Executive's employment without Cause or the Executive terminates his employment for Good Reason, or the Executive's Employment terminates by reason of death or Disability, the Executive's right to the entire Option Award shall vest and become exercisable as of the Date of Termination. If, during the Employment Period, the Company terminates the Executive's employment for Cause or the Executive terminates his employment without Good Reason, including Retirement, the Executive shall forfeit all right to all shares of the Option Award that are not vested as of the Date of Termination. (ii) The Options shall expire ten (10) years after the Effective Date. (iii) Once Options become exercisable hereunder, the Executive may exercise such Options in any manner permitted by the LTIP. All vested options shall be exercised or shall be forfeited no later than the earlier of three years after termination of employment or 10 years after the Effective Date. (iv) Unless specifically provided by this Agreement, all terms and conditions of the Options granted hereunder shall be governed by the LTIP. (v) The Compensation Committee may make such provisions and take such steps as it may deem necessary or appropriate for the withholding of any taxes that the Company is required by law or regulation of any governmental authority, whether federal, state or local, domestic or foreign, to withhold in connection with the Option Award, including, but not limited to (1) withholding delivery of the certificate for shares of Stock until the Executive reimburses the Company for the amount it is required to withhold with respect to such taxes, (2) the canceling of any number of shares of Stock issuable to the Executive in an amount necessary to reimburse the Company for the amount it is required to so withhold, or (3) withholding the amount due from the Executive's other compensation. (e) Employee Benefit Programs. During the Employment Period, (i) the Executive shall be eligible to participate in all savings and retirement plans, practices, policies and programs to the same extent as other senior executives of the Company and (ii) the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company, other than severance plans, practices, policies and programs but including, without limitation, medical, prescription, dental, disability, salary continuance, employee life insurance, group life insurance, accidental death and travel accident insurance plans and programs, and, upon retirement, all applicable retirement benefit plans to the same extent and subject to the same terms, conditions, cost-sharing requirements and the like, as other senior executives of the Company, as such plans may be amended from time to time, and as supplemented hereby. Following a Change in Control, no benefit coverage available to the Executive and/or to his family under any such plan, practice, policy or program shall be materially reduced without the prior written consent of the Executive. (f) Retirement Benefit. During the Employment Period, the Executive shall participate in Enterprise's Pension Plan, and also in Enterprise's Limited Supplemental Benefits Plan, Mid-Career Hire Plan, Reinstatement Plan and such other supplemental executive retirement plans as may be adopted and amended by Enterprise from time to time ("SERPs"), such that the aggregate value of the retirement benefits that he and his beneficiaries will receive under all pension benefit plans of the Company (whether qualified or not) will not be less than the benefits he would have received had he continued to participate in such plans, as in effect immediately before the date hereof through the earlier of the end of the Employment Period or Retirement, and giving effect to the service credits as set forth in Section 7 of the employment agreement dated December 17, 1991, as amended by letter agreement dated January 6, 1998, between PSE&G and the Executive (the "PSE&G Employment Agreement"), the terms of which Section 7 are incorporated herein by reference, and a copy of which PSE&G Employment Agreement is attached hereto. It is agreed that the Option Award and any dividends or other distributions in respect of the Option Award shall not be included in any pension calculation. The Executive's right to retire shall be governed by the Enterprise Pension Plan ("Retirement"). (g) Expenses. The Executive is authorized to incur reasonable expenses in carrying out his duties and responsibilities under this Agreement. The Company shall promptly reimburse him for all such expenses in accordance with the policies of the Company in effect from time to time for reimbursement of expenses for senior executives, and subject to documentation provided by the Executive in accordance with such Company policies. (h) Fringe Benefits. During the Employment Period, the Executive shall participate in all fringe benefits and perquisites available to senior executives of the Company, including provision of an automobile, on terms and conditions that are commensurate with his positions and responsibilities at the Company. (i) Vacation. During the Employment Period, the Executive shall be entitled to paid vacation in accordance with Company policy for its most senior executives as in effect from time to time, or six weeks vacation, whichever is greater. (j) Deferred Compensation. The Executive will retain all of his rights in any compensation deferred prior to the date hereof in accordance with the Deferred Compensation Plan, including earnings thereon, and following the date hereof the obligations of the Company to pay such deferred compensation at the times and in the manner specified in the Deferred Compensation Plan will continue. 4. Termination of Employment. ------------------------- (a) Death or Disability. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. If the Company determines in good faith that the Disability of the Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Executive written notice in accordance with Section 4(b) of this Agreement of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. For purposes of this Agreement, "Disability" means that (i) the Executive has been unable, for the period, if any, specified in the Company's disability plan for senior executives, but not less than a period of 180 consecutive days, to perform the Executive's duties under this Agreement and (ii) a physician selected by the Company or its insurers, and acceptable to the Executive or the Executive's legal representative, has determined that the Executive is disabled within the meaning of the applicable disability plan for senior executives. (b) By the Company. -------------- (i) The Company may terminate the Executive's employment during the Employment Period for Cause or without Cause. For purposes of this Agreement, "Cause" shall mean (A) willful and continued failure by the Executive to substantially perform his duties under this Agreement, (B) the willful engaging by the Executive in gross misconduct which is materially and demonstrably injurious to the Company, or (C) the conviction of the Executive of a felony. No act or failure to act on the part of the Executive shall be considered "willful" unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive's action or omission was in the best interests of the Company. Any act or failure to act that is based upon authority given pursuant to a resolution duly adopted by the Board of Directors of the Company, or the advice of counsel for the Company, shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. (ii) A termination of the Executive's employment for Cause shall be effected in accordance with the following procedures. The Company shall give the Executive written notice ("Notice of Termination for Cause") of its intention to terminate the Executive's employment for Cause, setting forth in reasonable detail the specific conduct of the Executive that it considers to constitute Cause and the specific provision(s) of this Agreement on which it relies. Such notice shall be given no later than 60 days after the act or failure (or the last in a series of acts or failures) that the Company alleges to constitute Cause. The Executive shall have 30 days after receiving the Notice of Termination for Cause in which to cure such act or failure, to the extent such cure is possible. In the case of a termination under Section 4(b)(i)(A) or Section 4(b)(i)(B), if the Executive fails to cure such act or failure to the reasonable satisfaction of the Company, the Company shall give the Executive a second written notice stating that in the good faith opinion of the Board, the Executive is guilty of the conduct described in the Notice of Termination for Cause and that such conduct constitutes Cause under this Agreement. (c) Good Reason. ----------- (i) The Executive may terminate his employment during the Employment Period for Good Reason or without Good Reason. For purpose of this Agreement, "Good Reason" shall mean: (A) prior to the occurrence of a Change in Control, any reduction in the Executive's Annual Base Salary; (B) following a Change in Control: (1) any reduction in the Executive's Annual Base Salary, target annual bonus, target long-term incentive or Retirement benefit; (2) any adverse change in the Executive's title, authority, duties, responsibilities and reporting lines or the assignment to the Executive of any duties or responsibilities inconsistent in any respect with those customarily associated with the position of the Executive immediately prior to the Change in Control; (3) any purported termination of the Executive's employment by the Company for a reason or in a manner not expressly permitted by this Agreement; (4) any failure by Enterprise to comply with Section 10(c) of this Agreement; or (5) any other material breach of this Agreement by the Company that either is not taken in good faith or, even if taken in good faith, is not remedied by the Company promptly after receipt of notice thereof from the Executive. Following a Change in Control, the Executive's determination that an act or failure to act constitutes Good Reason shall be conclusively presumed to be valid unless such determination is decided to be unreasonable by an arbitrator pursuant to Section 9. (ii) A termination of employment by the Executive for Good Reason shall be effectuated by giving the Company written notice ("Notice of Termination for Good Reason") of the termination, setting forth in reasonable detail the specific acts or omissions of the Company that constitute Good Reason and the specific provision(s) of this Agreement on which the Executive relies. Unless the CEO determines otherwise, a Notice of Termination for Good Reason by the Executive must be made within 60 days after the Executive first has actual knowledge of the act or omission (or the last in a series of acts or omissions) that the Executive alleges to constitute Good Reason, and the Company shall have 30 days from the receipt of such Notice of Termination for Good Reason to cure the conduct cited therein. A termination of employment by the Executive for Good Reason shall be effective on the final day of such 30-day cure period unless prior to such time the Company has cured the specific conduct asserted by the Executive to constitute Good Reason to the reasonable satisfaction of the Executive. (iii) A termination of the Executive's employment by the Executive without Good Reason, including Retirement, shall be effected by giving the Company at least 30 days' written notice specifying the effective date of termination. (d) Date of Termination. The "Date of Termination" means the date of the Executive's death, the Disability Effective Date, or the date on which the termination of the Executive's employment by the Company for Cause or without Cause or by the Executive for Good Reason or without Good Reason, including Retirement, is effective, as the case may be. 5. Obligations of the Company upon Termination. ------------------------------------------- (a) Good Reason; Other Than for Cause. If, during the Employment Period, the Company shall terminate the Executive's employment other than for Cause, death or Disability, or the Executive shall terminate his employment for Good Reason: (i) the Company shall pay to the Executive in a lump sum in cash, within 15 days after the Date of Termination, the aggregate of the amounts set forth in clauses A and B below: A. The sum of: (1) the Executive's Annual Base Salary through the Date of Termination; (2) the product of (x) the "target" annual bonus under Section 3(b) (the "Target Bonus") and (y) a fraction, the numerator of which is the number of days in the current calendar year through the Date of Termination, and the denominator of which is 365; and (3) any accrued vacation pay; in each case to the extent not theretofore paid (the sum of the amounts described in clauses (1), (2) and (3) shall be hereinafter referred to as the "Accrued Obligations"); and B. the amount equal to the product of (1) two and (2) the sum of (x) the Executive's Annual Base Salary and (y) the Target Bonus. (ii) the Option Award shall vest in accordance with Section 3(d)(i); (iii) any stock awards, stock options, other than the Option Award, stock appreciation rights or other equity-based awards that were outstanding immediately prior to the Date of Termination ("Prior Equity Awards") shall vest and/or become exercisable in accordance with the underlying plan for such Prior Equity Award; (iv) for two years after the Executive's Date of Termination or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue benefits to the Executive and/or the Executive's family at least equal to those which would have been provided to them in accordance with the welfare plans, programs, practices and policies described in Section 3(e) of this Agreement if the Executive's employment had not been terminated or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies and their families, provided however, that if the Executive becomes reemployed with another employer and is eligible to receive medical or dental benefits under another employer provided plan, the medical and dental benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility; (v) any compensation previously deferred (other than pursuant to a tax-qualified plan) by or on behalf of the Executive (together with any accrued interest or earnings thereon), whether or not then vested, shall become vested on the Date of Termination and shall be paid in accordance with the terms of the plan, policy or practice under which it was deferred; (vi) the Company shall, at its sole expense as incurred, provide the Executive with outplacement services suitable to the Executive's position for a period not to exceed two years with a nationally recognized outplacement firm; and, (vii) to the extent not theretofore paid or provided, the Company shall pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is entitled to receive under any plan, program, policy, practice, contract or agreement of the Company and its affiliated companies (other than medical or dental benefits if the Executive is eligible for such benefits to be provided by a subsequent employer), including earned but unpaid stock and similar compensation but excluding any severance plan or policy (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"). (b) Cause; Other than for Good Reason. If the Executive's employment shall be terminated for Cause during the Employment Period, or if the Executive voluntarily terminates employment during the Employment Period, excluding a resignation for Good Reason, the Company shall have no further payment obligations to the Executive other than for amounts described in Sections 5(a)(i)(A)(1) and 5(a)(i)(A)(3) and the timely payment or provision of Other Benefits. In such case, all such amounts shall be paid to the Executive in a lump sum within 30 days of the Date of Termination. Any unvested portion of the Option Award shall be forfeited in accordance with Section 3(d)(i). (c) Death. If the Executive's employment terminates by reason of the Executive's death during the Employment Period, all Accrued Obligations as of the time of death shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination and the Executive's estate or beneficiary shall be entitled to any Other Benefits in accordance with their terms. In addition, the Option Award shall vest in accordance with Section 3(d)(i). Any Prior Equity Awards shall vest and/or become exercisable, as the case may be, as of the Date of Termination and the Executive's estate or beneficiary, as the case may be, shall have the right to exercise any such stock option, stock appreciation right or other exercisable equity-based award until the earlier of (A) one year from the Date of Termination (or such longer period as may be provided under the terms of any such stock option, stock appreciation right or other equity-based award) and (B) the normal expiration date of such stock option, stock appreciation right or other equity-based award. (d) Disability. If the Executive's employment is terminated by reason of Disability during the Employment Period, all Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination, and the Executive shall be entitled to any Other Benefits in accordance with their terms. In addition, the Option Award shall vest in accordance with Section 3(d)(i). Any Prior Equity Awards shall vest immediately and/or become exercisable, as the case may be, and the Executive shall have the right to exercise any such stock option, stock appreciation right or other exercisable equity-based award until the earlier of (A) one year from the Date of Termination (or such longer period as may be provided under the terms of any such stock option, stock appreciation right or other equity-based award) and (B) the normal expiration date of such stock option, stock appreciation right or other equity-based award. (e) Retirement. If the Executive's employment terminates as a result of Retirement, the Executive shall be paid the Accrued Obligations in a lump sum in cash within 30 days of the Date of Termination and the Executive shall be entitled to any Other Benefits in accordance with their terms. Any remaining portion of the Option Award shall vest or be forfeited in accordance with Section 3(d)(i). 6. Change in Control. ----------------- (a) Benefits Upon a Change in Control. The Executive's rights upon a termination of employment that occurs following a Change in Control shall be as specified in Section 5 generally for termination of employment, except (i) the amount payable under 5(a)(i)(B) shall be three times the sum of (x) the Executive's Annual Base Salary and (y) the Target Bonus; (ii) the benefits under Section 5(a)(iv) shall be provided for three years after the Date of Termination and the Executive's eligibility (but not the time of commencement of such benefits) for retiree benefits pursuant to such plans, practices, programs and policies shall be determined as if the Executive had remained employed until three years after the Date of Termination and to have retired on the last day of such period; (iii) the Option Award shall have vested in accordance with Section 3(d)(i); and (iv) the Executive shall be paid within 15 days after the Date of Termination, an amount equal to the excess of (A) the actuarial equivalent of the benefit under the Company's applicable qualified defined benefit retirement plan in which the Executive is participating immediately prior to his Date of Termination (the "Retirement Plan") (utilizing the rate used to determine lump sums and, to the extent applicable, other actuarial assumptions no less favorable to the Executive than those in effect under the Retirement Plan immediately prior to the Date of this Agreement), any SERPs in which the Executive participates and, to the extent applicable, any other defined benefit retirement arrangement between the Executive and the Company ("Other Pension Benefits") which the Executive would receive if the Executive's employment continued for three additional years beyond the Date of Termination, assuming for this purpose that all accrued benefits are fully vested, and, assuming that the Executive's compensation for such deemed additional period was the Executive's Annual Base Salary as in effect immediately prior to the Date of Termination and assuming a bonus in each year during such deemed additional period equal to the Target Bonus, over (B) the actuarial equivalent of the Executive's actual benefit (paid or payable), if any, under the Retirement Plan, the SERPs and Other Pension Benefits as of the Date of Termination (utilizing the rate used to determine lump sums and, to the extent applicable, other actuarial assumptions no less favorable to the Executive than those in effect under the Retirement Plan immediately prior to the date of this Agreement). (b) Definition. For purposes of this Agreement, a "Change in Control" shall mean the occurrence of any of the -- following events after the date of this Agreement: (i) any "person" (within the meaning of Section 13(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") is or becomes the beneficial owner within the meaning of Rule 13d-3 under the Exchange Act (a "Beneficial Owner"), directly or indirectly, of securities of Enterprise (not including in the securities beneficially owned by such person any securities acquired directly from Enterprise or its affiliates) representing 25% or more of the combined voting power of Enterprise's then outstanding securities, excluding any person who becomes such a Beneficial Owner in connection with a transaction described in clause (A) of paragraph (iii) below; or (ii) the following individuals cease for any reason to constitute a majority of the number of directors of Enterprise then serving: individuals who, on the date of this Agreement, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of Enterprise) whose appointment or election by the Board or nomination for election by Enterprise's stockholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved or recommended; or (iii) there is consummated a merger or consolidation of Enterprise or any direct or indirect wholly-owned subsidiary of Enterprise with any other corporation, other than (A) a merger or consolidation which would result in the voting securities of Enterprise outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of Enterprise or any subsidiary of Enterprise, at least 75% of the combined voting power of the securities of Enterprise or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (B) a merger or consolidation effected to implement a recapitalization of Enterprise (or similar transaction) in which no person is or becomes the Beneficial Owner, directly or indirectly, of securities of Enterprise representing 25% or more of the combined voting power of Enterprise's then outstanding securities; or (iv) the shareholders of Enterprise approve a plan of complete liquidation or dissolution of Enterprise or there is consummated an agreement for the sale or disposition by Enterprise of all or substantially all of Enterprise's assets, other than a sale or disposition by Enterprise of all or substantially all of Enterprise's assets to an entity, at least 75% of the combined voting power of the voting securities of which are owned by stockholders of Enterprise in substantially the same proportions as their ownership of Enterprise immediately prior to such sale. Notwithstanding the foregoing, a "Change in Control" shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions immediately following which the record holders of the common stock of Enterprise immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in an entity which owns all or substantially all of the assets of Enterprise immediately following such transaction or series of transactions. 7. Confidential Information; No Competition. ---------------------------------------- (a) The Executive shall hold in a fiduciary capacity for the benefit of the Company all confidential information, knowledge or data (defined below) relating to the Company or any of its affiliates or subsidiaries, and their respective businesses, which shall have been obtained by the Executive during the Executive's employment by the Company or any of its affiliated companies and which shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). Upon Termination of the Executive's employment, he shall return to the Company all Company information. After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it, except (x) otherwise publicly available information, or (y) as may be necessary to enforce his rights under this Agreement or necessary to defend himself against a claim asserted directly or indirectly by the Company or its affiliates. Unless and until a determination has been made in accordance with Section 7(d) or Section 9 hereof that the Executive has violated this Section 7, an asserted violation of the provisions of this Section 7 shall not constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. (b) As used herein, the term "confidential information, knowledge or data" means all trade secrets, proprietary and confidential business information belonging to, used by, or in the possession of the Company or any of its affiliates and subsidiaries, including but not limited to information, knowledge or data related to business strategies, plans and financial information, mergers, acquisitions or consolidations, purchase or sale of property, leasing, pricing, sales programs or tactics, actual or past sellers, purchasers, lessees, lessors or customers, those with whom the Company or its affiliates and subsidiaries has begun negotiations for new business, costs, employee compensation, marketing and development plans, inventions and technology, whether such confidential information, knowledge or data is oral, written or electronically recorded or stored, except information in the public domain, information known by the Executive prior to employment with the Company, and information received by the Executive from sources other than the Company or its affiliates and subsidiaries, without obligation of confidentiality. (c) The confidential knowledge, information and data, as defined in the previous paragraph, gained in the performance of the Executive's duties hereunder may be valuable to those who are now, or might become, competitors of the Company or its affiliates and subsidiaries. Accordingly, the Executive agrees that, without the written consent of Enterprise, he will not, for the period of one year from Date of Termination or completion of the Employment Period, whichever occurs first, directly own, manage, operate, join, control, become employed by, consult to or participate in the ownership, management, or control of any business which is in direct competition with the Company and/or its affiliates and subsidiaries. Further, the Executive agrees that, for two years following the Date of Termination, he will not, directly or indirectly, solicit or hire, or encourage the solicitation or hiring of any person who was a managerial or higher level employee of the Company at any time during the term of the Executive's employment by the Company by any employer other than the Company for any position as an employee, independent contractor, consultant or otherwise. The foregoing agreement of the Executive shall not apply to any person after 6 months have elapsed subsequent to the date on which such person's employment by the Company has terminated. In the case of any such prohibited activity, the Executive shall not be entitled to post-employment payments (including any unexercised options under the Option Award). (d) In the event of a breach by the Executive of any of the agreements set forth in Paragraphs (a), (b) or (c) above, it is agreed that the Company shall suffer irreparable harm for which money damages are not an adequate remedy, and that, in the event of such breach, the Company shall be entitled to obtain an order of a court of competent jurisdiction for equitable relief from such breach, including, but not limited to, temporary restraining orders and preliminary and/or permanent injunctions against the breach of such agreements by the Executive. In the event that the Company should initiate any legal action for the breach or enforcement of any of the provisions contained in this Section 7 and the Company does not prevail in such action, the Company shall promptly reimburse the Executive the full amount of any court costs, filing fees, attorney's fees which the Executive incurs in defending such action, and any loss of income during the period of such litigation. 8. Full Settlement. --------------- (a) No Duty to Mitigate; No Reduction. Except as provided in Section 7(c), and except to the extent that a Court under Section 7(d) or an arbitrator appointed under Section 9 shall determine to permit an offset in respect of a violation by the Executive of his obligations under Section 7, the Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and, except as specifically provided in Section 5(a)(iv) and Section 5(a)(vii) with respect to certain medical and dental benefits, such amounts shall not be reduced whether or not the Executive obtains other employment. (b) Non-exclusivity of Rights. Except as provided in Section 7(c), nothing in the Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies for which the Executive may qualify. Vested benefits and other amounts that the Executive is otherwise entitled to receive under the incentive compensation plans referred to in Section 3(c), the SERPs, or any other plan, policy, practice of program of the Company or any of its affiliated companies on or after the Date of Termination shall be payable in accordance with the terms of each such plan, policy, practice or program, as the case may be, except as explicitly modified by this Agreement. 9. Disputes Except with respect to equitable relief provided for in Section 7(d), any dispute about the validity, interpretation, effect or alleged violation of this Agreement shall be resolved by confidential binding arbitration before one arbitrator to be held in Newark, New Jersey in accordance with the Employment Dispute Resolution Rules of the American Arbitration Association and the United States Arbitration Act. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereover. All costs and expenses incurred by the Company or the Executive or the Executive's beneficiaries in connection with any such controversy or dispute, including without limitation reasonable attorney's fees, shall be borne by the Company as incurred, except that the Executive shall be responsible for any such costs and expenses incurred in connection with any claim determined by the arbitrator to have been without reasonable basis or to have been brought in bad faith. The Executive shall be entitled to interest at the applicable Federal rate provided for in Section 7872 (f) (2)(A) of the Internal Revenue Code of 1986, as amended (the "Code"), on any delayed payment which the arbitrator determine he was entitled to under this Agreement. 10. Successors. ---------- (a) No Assignment by Executive. This Agreement is personal to the Executive and without the prior written consent of Enterprise shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) Successors to Enterprise. This Agreement shall inure to the benefit of and be binding upon Enterprise and its successors and assigns. (c) Performance by a Successor to Enterprise. Enterprise will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all o f the business and/or assets of Enterprise to assume expressly and agree to perform this Agreement in the same manner and to the same extent that Enterprise would be required to perform it if no such succession had taken place. As used in this Agreement, "Enterprise" shall mean Enterprise as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 11. Certain Additional Payments by the Company. ------------------------------------------ (a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 11) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income and employment taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. (b) Subject to the provisions of Section 11(c), all determinations required to be made under this Section 11, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by the Company's independent auditors or such other certified public accounting firm as may be jointly designated by the Executive and the Company (the "Accounting Firm"), which shall provide detailed supporting calculations both to the Company and the Executive. All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 11, shall be paid by the Company to the Executive within 15 days of the receipt of the Accounting Firm's determination. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 11(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive. (c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which he gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) give the Company any information reasonably requested by the Company relating to such claim, (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iii) cooperate with the Company in good faith in order effectively to contest such claim, and (iv) permit the Company to participate in any proceedings relating to such claim; provided however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 11(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 11(c), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of Section 11(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 11(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 12. Miscellaneous. ------------- (a) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey applicable to agreements executed and performed entirely therein. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) Notices. All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: 80 Park Plaza P. O. Box 1171 Newark, NJ 07102 If to the Company: 80 Park Plaza P. O. Box 1171 Newark, NJ 07102 Attention: Vice President and General Counsel or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (c) Invalidity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. If any provision of this Agreement shall be held invalid or unenforceable in part, the remaining portion of such provision, together with all other provisions of this Agreement, shall remain valid and enforceable and continue in full force and effect to the fullest extent consistent with law. Further, to the extent that a provision is to be held invalid or unenforceable, it shall be limited or construed in a manner that is valid and enforceable and gives maximum permissible effect to the provision and the intent of this Agreement. (d) Tax Withholding. Notwithstanding any other provision of this Agreement, the Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) Failure to Assert Rights. The Executive's or the Company's failure to insist upon strict compliance with any provisions of, or to assert any right under, this Agreement shall not be deemed to be a waiver of such provision or right or of any other provision of or right under this Agreement. (f) No Alienation. The rights and benefits of the Executive under this Agreement may not be anticipated, assigned, alienated or subject to attachment, garnishment, levy, execution or other legal or equitable process except as required by law. Any attempt by the Executive to anticipate, alienate, assign, sell, transfer, pledge, encumber or charge the same shall be void. Payments hereunder shall not be considered assets of the Executive in the event of insolvency or bankruptcy. (g) Entire Agreement. This Employment Agreement represents the complete agreement between the Executive and the Company relating to employment and termination and may not be altered or changed except by written agreement executed by the parties hereto or their respective successors or legal representatives. This Agreement supersedes the PSE&G Employment Agreement, except Section 7 thereof, which is hereby incorporated by reference into this Agreement. IN WITNESS WHEREOF, the Executive and, pursuant to due authorization from its Board of Directors, the Company have caused this Agreement to be executed as of the day and year first above written. By: ROBERT C. MURRAY ________________________________ Robert C. Murray Vice President and Chief Financial Officer of Enterprise and Executive Vice President - Finance of PSEG Services Corporation PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED By: E. JAMES FERLAND ________________________________ E. James Ferland Chairman of the Board, President and Chief Executive Officer EX-12 6 0006.txt PSEG COMPUTATION OF EARNINGS TO FIXED CHARGES
EXHIBIT 12 - -------------------------------------------------------------------------------------------------------------------------- PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED - -------------------------------------------------------------------------------------------------------------------------- COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES 12 Months Ended YEARS ENDED DECEMBER 31, September 30, ------------- ------------ ------------- ------------ ------------ ----------- 1995 1996 1997 1998 1999 2000 ------------- ------------ ------------- ------------ ------------ ----------- Earnings as Defined in Regulation S-K (A): Income from Continuing Operations (B) $627 $588 $560 $644 $723 $688 Income Taxes (C) 348 297 284 428 563 502 Fixed Charges 549 527 543 577 615 682 ------------- ------------ ------------- ------------ ----------- ----------- Earnings $1,524 $1,412 $1,387 $1,649 $1,901 $1,872 ============= ============ ============= ============ =========== =========== Fixed Charges as Defined in Regulation S-K (D): Total Interest Expense (E) $464 $453 $470 $481 $506 $572 Interest Factor in Rentals 12 12 11 11 10 10 Subsidiaries' Preferred Securities Dividend Requirements 16 28 44 71 85 86 Preferred Stock Dividends 34 22 12 9 9 9 Adjustment to Preferred Stock Dividends to state on a pre-income tax basis 23 12 6 5 5 5 ------------- ------------ ------------- ------------ ----------- ----------- Total Fixed Charges $549 $527 $543 $577 $615 $682 ============= ============ ============= ============ =========== =========== Ratio of Earnings to Fixed Charges 2.78 2.68 2.55 2.86 3.09 2.75 ============= ============ ============= ============ =========== =========== (A) The term "earnings" shall be defined as pretax income from continuing operations. Add to pretax income the amount of fixed charges adjusted to exclude (a) the amount of any interest capitalized during the period and (b) the actual amount of any preferred stock dividend requirements of majority-owned subsidiaries which were included in such fixed charges amount but not deducted in the determination of pretax income. (B) Excludes income from discontinued operations and extraordinary item. (C) Includes State income taxes and Federal income taxes for other income and excludes taxes applicable to extraordinary item. (D) Fixed Charges represent (a) interest, whether expensed or capitalized, (b) amortization of debt discount, premium and expense, (c) an estimate of interest implicit in rentals, and (d) preferred securities dividend requirements of subsidiaries and preferred stock dividends, increased to reflect the pre-tax earnings requirement for Public Service Enterprise Group Incorporated. (E) Excludes interest expense from discontinued operations.
EX-12 7 0007.txt PSE&G COMPUTATION OF EARNINGS
EXHIBIT 12 (A) - ---------------------------------------------------------------------------------------------------------------------------- PUBLIC SERVICE ELECTRIC AND GAS COMPANY - ---------------------------------------------------------------------------------------------------------------------------- COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES 12 Months Ended YEARS ENDED DECEMBER 31, September 30, ----------- ------------ ------------- ------------ ------------ ---------- 1995 1996 1997 1998 1999 2000 ----------- ------------ ------------- ------------ ------------ ---------- Earnings as Defined in Regulation S-K (A): Net Income (B) $617 $535 $528 $602 $653 $620 Income Taxes (C) 326 268 256 404 510 450 Fixed Charges 419 438 450 446 450 404 ----------- ------------ ------------- ------------ ------------ ----------- Earnings $1,362 $1,241 $1,234 $1,452 $1,613 $1,474 =========== ============ ============= ============ ============ =========== Fixed Charges as Defined in Regulation S-K (D): Total Interest Expense $407 $399 $395 $390 $394 $348 Interest Factor in Rentals 12 11 11 11 10 10 Subsidiaries' Preferred Securities Dividend Requirements -- 28 44 45 46 46 ----------- ------------ ------------- ------------ ------------ ----------- Total Fixed Charges $419 $438 $450 $446 $450 $404 =========== ============ ============= ============ ============ =========== Ratio of Earnings to Fixed Charges 3.25 2.83 2.74 3.27 3.58 3.65 =========== ============ ============= ============ ============ =========== (A) The term "earnings" shall be defined as pretax income from continuing operations. Add to pretax income the amount of fixed charges adjusted to exclude (a) the amount of any interest capitalized during the period and (b) the actual amount of any preferred stock dividend requirements of majority-owned subsidiaries which were included in such fixed charges amount but not deducted in the determination of pretax income. (B) Excludes extraordinary item. (C) Includes State income taxes and Federal income taxes for other income and excludes taxes applicable to extraordinary item. (D) Fixed Charges represent (a) interest, whether expensed or capitalized, (b) amortization of debt discount, premium and expense, (c) an estimate of interest implicit in rentals, and (d) Preferred Securities Dividend Requirements of subsidiaries.
EX-12 8 0008.txt PSE&G COMPUTATION OF EARNINGS
EXHIBIT 12 (B) - ----------------------------------------------------------------------------------------------------------------------------- PUBLIC SERVICE ELECTRIC AND GAS COMPANY - ----------------------------------------------------------------------------------------------------------------------------- COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES PLUS PREFERRED STOCK DIVIDEND REQUIREMENTS 12 Months Ended YEARS ENDED DECEMBER 31, September 30, ------------ ------------- ------------ ------------ ------------- ------------ 1995 1996 1997 1998 1999 2000 ------------ ------------- ------------ ------------ ------------- ------------ Earnings as Defined in Regulation S-K (A): Net Income (B) $617 $535 $528 $602 $653 $620 Income Taxes (C) 326 268 256 404 510 450 Fixed Charges 419 438 450 446 450 404 ------------ ------------- ------------ ------------ ------------- ------------ Earnings $1,362 $1,241 $1,234 $1,452 $1,613 $1,474 ============ ============= ============ ============ ============= ============ Fixed Charges as Defined in Regulation S-K (D): Total Interest Expense $407 $399 $395 $390 $394 $348 Interest Factor in Rentals 12 11 11 11 10 10 Subsidiaries' Preferred Securities Dividend Requirements -- 28 44 45 46 46 Preferred Stock Dividends 49 23 12 9 9 9 Adjustment to Preferred Stock Dividends to state on a pre-income Tax basis 24 12 6 6 7 7 ------------ ------------- ------------ ------------ ------------- ------------ Total Fixed Charges $492 $473 $468 $461 $466 $420 ============ ============= ============ ============ ============= ============ Ratio of Earnings to Fixed Charges 2.77 2.62 2.64 3.15 3.46 3.51 ============ ============= ============ ============ ============= ============ (A) The term "earnings" shall be defined as pretax income from continuing operations. Add to pretax income the amount of fixed charges adjusted to exclude (a) the amount of any interest capitalized during the period and (b) the actual amount of any preferred stock dividend requirements of majority-owned subsidiaries which were included in such fixed charges amount but not deducted in the determination of pretax income. (B) Excludes extraordinary item. (C) Includes State income taxes and Federal income taxes for other income and excludes taxes applicable to extraordinary item. (D) Fixed Charges represent (a) interest, whether expensed or capitalized, (b) amortization of debt discount, premium and expense, (c) an estimate of interest implicit in rentals, and (d) preferred securities dividend requirements of subsidiaries and preferred stock dividends, increased to reflect the pre-tax earnings requirement for Public Service Electric and Gas Company.
EX-12 9 0009.txt PSEG ENERGY HOLDINGS, INC. COMPUTATION OF EARNINGS
EXHIBIT 12(C) - -------------------------------------------------------------------------------------------------------------------------- PSEG ENERGY HOLDINGS INCORPORATED - -------------------------------------------------------------------------------------------------------------------------- COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES 9 Months Ended YEARS ENDED DECEMBER 31, September 30, ------------- ------------ ------------- ------------ ------------ ----------- 1995 1996 1997 1998 1999 2000 ------------- ------------ ------------- ------------ ------------ ----------- Earnings as Defined in Regulation S-K (A): Income from Continuing Operations $71 $73 $73 $98 $176 $82 (Income)/Loss from equity investees net of distributions 13 50 (35) 30 9 5 Fixed Charges 60 61 79 94 106 105 Amortization of capitalized interest 0 0 0 0 0 0 Capitalized interest (2) (1) (5) (1) (8) (14) ------------- ------------ ------------- ------------ ----------- ----------- Earnings $142 $183 $113 $221 $282 $178 ============= ============ ============= ============ =========== =========== Fixed Charges as Defined in Regulation S-K (B): Total Interest Expense $59 $60 $77 $92 $103 $102 Interest in rental expense 1 1 2 2 3 2 ------------- ------------ ------------- ------------ ----------- ----------- Total Fixed Charges $60 $61 $79 $94 $106 $104 ============= ============ ============= ============ =========== =========== Ratio of Earnings to Fixed Charges 2.38 3.01 1.42 2.35 2.66 1.71 ============= ============ ============= ============ =========== =========== (A) The term "earnings" shall be defined as pretax income from continuing operations before adjustment for minority interests or income or loss from equity investees. Add fixed charges adjusted to exclude (a) the amount of any interest capitalized during the period and (b) amortization of capitalized interest and (c) distributed income of equity investees. From the total, subtract interest capitalized. (B) Fixed Charges represent (a) interest, whether expensed or capitalized, (b) amortization of debt discount, premium and expense, and (c) an estimate of interest implicit in rentals.
EX-27.A 10 0010.txt FDS PSEG
UT This schedule contains summary financial information extracted from SEC Form 10-Q and is qualified in its entirety by reference to such financial statements. 0000788784 PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED 1000000 9-MOS DEC-31-1999 JAN-01-2000 SEP-30-2000 PER-BOOK 5,738 6,873 1,825 5,272 0 19,708 2,935 0 1,398 4,142 1,113 95 4,706 0 0 2,664 779 0 52 2 6,155 19,708 4,970 364 3,582 3,946 1,024 11 1,035 481 554 71 554 348 223 929 1.62 1.62 Includes Treasury Stock of ($669). Includes Foreign Currency Translation Adjustment of ($188). Federal and State Income Taxes are included in this line item for FDS purposes. Total interest expense includes Preferred Securities Dividends Requirements.
EX-27.B 11 0011.txt FDS PSE&G
UT This schedule contains summary financial information extracted from SEC Form 10-Q and is qualified in its entirety by reference to such financial statements. 0000081033 PUBLIC SERVICE ELECTRIC AND GAS COMPANY 1000000 9-MOS DEC-31-1999 JAN-01-2000 SEP-30-2000 PER-BOOK 5,738 2,975 1,070 5,031 0 14,814 2,563 594 641 4,781 588 95 3,391 0 0 1,595 0 0 52 2 4,310 14,814 4,365 333 3,268 3,601 1,097 17 1,114 280 834 7 827 450 223 807 0 0 Federal and State Income Taxes are included in this line item for FDS purposes. Total interest expense includes Preferred Securities Dividend Requirements.
EX-27.C 12 0012.txt FDS PSEG ENERGY HOLDINGS INC
UT This schedule contains summary financial information extracted from SEC Form 10-Q and is qualified in its entirety by reference to such financial statements. 0001089206 PSEG ENERGY HOLDINGS INCORPORATED 1000000 9-MOS DEC-31-1999 JAN-01-2000 SEP-30-2000 PER-BOOK 99 4,358 264 76 30 4,827 0 1,090 309 1,399 0 509 1,316 0 0 0 204 0 0 0 1,399 4,827 379 13 265 278 114 1 116 72 32 13 19 0 0 19 0 0
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